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Rating agency Crisil, on Monday, said its credit ratio (upgrades to downgrades) has been inching closer to 1 between October and February this fiscal, with a recovery in demand that has led to “guarded optimism” about the credit quality of India Inc.
“These five months saw as many as 244 upgrades compared with 208 for the whole first half,” it said, adding that downgrades continue to be material because the end of moratorium on debt servicing has impacted vulnerable companies.
According to Subodh Rai, Chief Ratings Officer, Crisil Ratings, the improvement in credit ratio was driven by more upgrades in moderately resilient sectors such as construction, engineering and electricity generation, which got support from the relaxation of lockdown, revival in demand and higher commodity prices.
“In comparison, the credit ratio for the first half had fallen to a decadal low of 0.54,” he said.
The agency said the turnaround has been sharper in investment-linked sectors such as construction and engineering, and consumption-linked sectors such as packaging. The credit ratio in these sector has already doubled, compared with the first half, supported by macroeconomic revival.
But in low-resilience sectors such as hotels and resorts, real estate developers and airport operators, downgrades continue to outpace upgrades due to their discretionary nature and leveraged balance sheets.
Akshay Chitgopekar, Director, Crisil Ratings, said: “We maintain a cautiously optimistic outlook on credit quality for the near to medium term, supported by normalisation of economic activity, good agriculture performance and sustained rural demand, and the Budget proposal to infrastructure investments.”
Second wave
He, however, warned of a second wave of pandemic – especially with mutations that undermine the effectiveness of vaccines – leading to containment measures can derail the ongoing recovery.
According to Crisil, other downside risks to the outlook include slower-than-anticipated demand growth, especially for services, continuing job losses, and sub-par implementation of the growth-oriented fiscal measures in the Union Budget.
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