India Inc’s credit quality remained robust in FY24, with the number of entities upgraded outpacing those downgraded even as the outlook on this front remains positive for the new financial year, going by credit rating agencies’ (CRAs) assessment of India Inc’s credit profile.

Rating agencies observed that a resilient economy, robust domestic consumption demand across several sectors, government spending on public infrastructure, and healthy balance sheets lent support to the credit profiles of entities.

This is notwithstanding global uncertainties, including supply effects of the continued war between Russia and Ukraine, start of another conflict between Israel and Palestine, the Red Sea crisis, besides sluggish exports.

Crisil Ratings said credit ratio (the ratio of the number of entities upgraded to that downgraded) moderated in the second half (H2) of fiscal 2024, but remained elevated at 1.79 times compared with 1.91 times in the first half. In all, there were 409 upgrades and 228 downgrades.

ICRA upgraded two entities for every entity downgraded in FY24, in continuation of the upgrade momentum set in motion in FY2022, on the heels of the first year of the pandemic. Credit ratio in FY24 was 2.1 against 2.8 in FY23.

CareEdge Ratings’ credit ratio witnessed an upswing, improving to 1.92 in H2FY24 (1.67 in H1FY24) after normalising for the previous two half years, from the peak of 3.74 in H1FY23. The credit ratio is comfortably higher than the 10-year average of 1.57. During H2FY24, the agency upgraded the ratings of 357 entities and downgraded the ratings of 186 entities.

India Ratings and Research (Ind-Ra) said the corporate credit profile continued its robust performance in FY24, the third year in a row. During this period, the agency upgraded the ratings of 312 issuers and downgraded the ratings of 114 issuers. The corporate downgrade-to-upgrade (D/U) ratio while remaining low at 0.37 for FY24, witnessed some moderation from 0.26 seen in FY23.

Infra, export sectors

“Sectors gaining from strong domestic consumption and government spending dominated the upgrades. The infrastructure and linked sectors outperformed the Crisil Ratings portfolio, with construction, renewable power and road assets leading the upgrades,” Crisil said.

Some export-linked sectors such as textiles and seafood saw a higher downgrade rate due to subdued global demand or high-cost inventory that impacted profitability, it added.

Gurpreet Chhatwal, Managing Director, Crisil Ratings said, “The three key pillars of India Inc’s credit quality — deleveraged balance sheets, sustained domestic demand and government-led capex — kept the upgrade rate elevated in the second half of fiscal 2024. That’s above the 10-year average for the sixth consecutive half-year. While commodity prices have softened, revenue of upgraded companies grew 13 per cent in fiscal 2024, largely led by a pick-up in volume. With balance sheets in most sectors at their healthiest, capacity utilisation around peak levels and expected interest rate cuts, a broad-based pick-up in private capex is finally in sight.”

K Ravichandran, Chief Rating Officer, ICRA, observed that Corporate India has shown a high resilience to withstand the rise in borrowing costs over the past two years and is seen to have the capacity to bear the current level of interest rates, before the rate cut cycle likely begins in the latter part of the year.

Strict regulatory norms

The asset quality of banks and NBFCs has also been at its decadal best, with profitability and capitalisation indicators expected to remain healthy in the near term.

“The series of proactive actions taken by the regulators (RBI and SEBI) in recent years would work to further strengthen the financial system and capital markets. The downside factors that could throw a spanner in the works to this radiant prognosis would be how the monsoons pan-out this year and how the complicated geopolitical landscape evolves,” Ravichandran said.

Crisil said for fiscal 2025, the credit quality outlook remains positive, with upgrades seen continuing to outpace downgrades, driven by domestic demand, low corporate debt levels and tailwinds from the ongoing infrastructure build-out.

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