Corporate credit outlook may be positive in Apr-sep FY25
Credit profiles for Indian companies continued to improve in FY2024, and the outlook for FY2025 remains positive, benefiting from higher domestic demand, low corporate debt and tailwinds from the ongoing infrastructure build, rating agencies said on Monday in their annual review of the just-concluded fiscal.
During FY2024, Crisil Ratings made 409 rating upgrades and 228 downgrades. Sectors gaining from strong domestic consumption and government spending dominated the upgrades. These included infrastructure-linked sectors, construction, renewable power and road assets.
However, some export-linked sectors, such as textiles and seafood, saw a higher downgrade rate due to subdued global demand or escalating costs that impacted profitability.
“The upgrade rate dipped a marginal about 70 basis points to 12% compared with the first half,” Crisil Ratings said.
“The downgrade rate, at 6.7%, remains closer to the 10-year average. That said, the reaffirmation
rate remained steady at about 81%,” it added.
Crisil expects a positive credit quality outlook, with more upgrades than downgrades in the first half of FY25.
While the multiplier effect of government capex will continue to drive infrastructure and linked sectors, healthy balance sheets will continue to support the credit quality outlook, with capex funding seen as prudent, the rating agency added.
“With balance sheets in most sectors at their healthiest, capacity utilization around peak levels and expected interest rate cuts, a broad-based pick-up in private capex is finally in sight,” said Gurpreet Chhatwal, managing director at Crisil Ratings.
According to Crisil, as many as 21 of 26 corporate sectors have strong-to- favourable credit quality outlooks marked by robust balance sheets and healthy operating cash flows, during FY2025.
These include auto-component manufacturers, hospitality and education sector companies apart from construction companies, and steel, cement and capital goods manufacturers.
However, sectors like speciality chemicals, agrochemicals, textile cotton spinning and diamond polishers continue to face headwinds due to subdued global demand.
Meanwhile, rating agency Icra Ltd expects the India’s GDP to expand by 7.6% during FY24 and 6.5% in FY2025, on the back of promising macroeconomic conditions and relatively stable commodity prices.
Icra said multiple challenges like inflation, rise in borrowing costs, sub-par monsoons, effects of the Ukraine war, the Gaza conflict and the Red Sea crisis, besides sluggish exports, impacted the Indian economy in FY24. Icra upgraded two entities for every entity downgraded in FY24.