Crisil Ratings revises India Inc’s credit quality outlook to ‘positive’

Crisil Ratings has revised the credit quality outlook of India Inc for fiscal year 2022 to ‘positive’ from ‘cautiously optimistic’ earlier.

Subodh Rai, Chief Ratings Officer, Crisil Ratings said, “Our outlook factors-in strong economic growth, both domestic and global, and containment measures that are localised and less stringent compared with the first wave, which should keep domestic demand buoyant even if a third wave materialises. We believe India Inc is on higher and stronger footing.”

The credit ratio (upgrades to downgrades) in the first four months of this fiscal improved to more than 2.5 times. It had touched a decadal low of 0.54 time amid the first wave in the first half of fiscal 2021, before recovering to 1.33 times in the second half, buoyed by a rebound in demand.

Broad-based recovery

A Crisil Ratings study of 43 sectors (accounting for 75 per cent of the ₹36 lakh crore outstanding rated debt, excluding the financial sector) shows the current recovery is broad-based. As many as 28 sectors (85 per cent of outstanding corporate debt understudy) are on course to see a 100 per cent rebound in demand to pre-pandemic levels by the end of this fiscal, while six sectors will see upwards of 85 per cent.

Among sectors with the most rating upgrades, construction and engineering, and renewable energy benefited from the government’s thrust on infrastructure spending, while steel and other metals gained from higher price realisations and profitability. Pharmaceuticals and specialty chemicals continued to see buoyancy backed by both, domestic and export growth.

But contact-intensive sectors such as hospitality and education services continue to bear the brunt of the pandemic and have had more downgrades than upgrades.

To be sure, targeted relief measures by the Reserve Bank of India (RBI) and the government amid the second wave have cushioned credit profiles in some sectors.

Somasekhar Vemuri, Senior Director, Crisil Ratings said, “Besides regulatory relief measures, a secular deleveraging trend has provided India Inc the balance sheet strength to cushion impact on their credit profiles. The median gearing for the CRISIL Ratings portfolio (excluding the financial sector) declined to ~0.8 time at the end of fiscal 2020 and then to an estimated ~0.7 time in fiscal 2021, from ~1.1 times in fiscal 2016.”

That said, unsecured retail and micro, small and medium enterprise loan segments are likely to witness higher stress over the near term. “The key monitorables from here would be a fat tail in the second wave or an intense third wave. Other risks to the positive credit outlook include regional and temporal distribution of rainfall and its implications for sustained demand recovery. Small businesses, in particular, will be more vulnerable to any slack in demand,’ the ratings agency said.

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