India Inc credit quality to stay as robust in new fiscal as in FY24

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 corporates’ credit profile.

Rating agencies observed that a resilient economy, the robust domestic consumption demand across several sectors, the government spending on public infrastructure, and the healthy balancesheets underpinned the credit profiles of corporates.

Crisil Ratings said the 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 that was 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 saw an upswing, improving to 1.92 in H2FY24 (1.67 in H1) after normalising for the previous two half years, from the peak of 3.74 in H1FY23. The credit ratio is comfortably higher than the 10year average of 1.57. In H2FY24, the agency upgraded the ratings of 357 entities and downgraded 186.

INFRA, EXPORTS

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

Gurpreet Chhatwal, Managing Director, Crisil Ratings, said: “The three key pillars of India Inc’s credit quality — deleveraged balancesheets, sustained domestic demand and governmentled capex — kept the upgrade rate elevated in the second half of fiscal 2024. That’s above the 10year 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 pickup in volume. With balancesheets in most sectors at their healthiest, capacity utilisation around peak levels, and expected interest rate cuts, a broadbased pickup in private capex is finally in sight.”

K Ravichandran, Chief Rating Officer, ICRA, said the asset quality of banks and NBFCs has also been at its decadal best with the profitability and the capitalisation indicators expected to remain healthy in the near term.

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