“The credit quality of Indian companies remained strong between October 2023 and March 2024 (H2FY24), supported by deleveraged balance sheets, sustained domestic demand, and government-led capital expenditure. Rating upgrades continued to surpass rating downgrades in H2FY24, with 409 upgrades and 228 downgrades, according to rating agency CRISIL.
The credit ratio, measuring rating upgrades to downgrades, moderated slightly to 1.79 times in H2FY24 compared to 1.91 times in H1FY24.
Looking ahead to the new financial year starting April 2024 (FY25), the credit quality outlook remains positive. Upgrades are expected to continue outpacing downgrades, driven by factors such as domestic demand, low corporate debt levels, and the ongoing infrastructure build-out.
Gurpreet Chhatwal, managing director of CRISIL Ratings, highlighted the three key pillars supporting India Inc’s credit quality: deleveraged balance sheets, sustained domestic demand, and government-led capex. These factors have kept the upgrade rate elevated, surpassing the 10-year average for the sixth consecutive half-year.
While commodity prices have softened, upgraded companies saw revenue growth of approximately 13% in FY24, primarily driven by increased volume. With healthy balance sheets across most sectors, high capacity utilization levels, and anticipated interest rate cuts, there’s anticipation of a broad-based pick-up in private capex.
For FY25, CRISIL notes that 21 out of 26 corporate sectors tracked have strong to favourable credit quality outlooks. These sectors exhibit robust balance sheets and healthy operating cash flows, expected to match or exceed FY24 levels. Notably, sectors like auto-component manufacturers, hospitality, and education are supported by strong domestic demand.
CRISIL also identifies sectors benefiting from government infrastructure spending, such as construction, steel, cement, and capital goods manufacturing. However, certain sectors, including speciality chemicals, agrochemicals, textile cotton spinning, and diamond polishers, face headwinds due to subdued global macroeconomic conditions. Despite these challenges, these sectors maintain stable to moderate outlooks due to their strong balance sheets.”
Source Of Information: Business Standard
