03 Oct , 2022 By : Monika Singh
Indian corporations strengthened their credit quality and saw improvement in credit ratings upgrades in the fiscal first half, reflecting resilience amid major global disruptions and policy shocks. The corporate credit ratio (upgrades vs downgrades) in H1FY23 was 3.3, as compared to 2.8 in H1FY22, ICRA said in a report on Monday. Most upgrades were in a few sectors namely real estate, engineering, textiles, financials, roads, and construction.
Real Estate: Majority of credit ratings upgrades belong to corporations that are engaged in the leasing of commercial office spaces or warehousing assets.
Financials: Small to mid-sized NBFCs with a loan book ranging from Rs 500 crore to Rs 10,000 crore witnessed major upgrades.
Textiles: Branded apparel manufacturers garnered substantial upgrades owing to the shift in consumer preferences towards branded wear.
Construction, Engineering, and Road Sectors: Public investment projects in irrigation, water supply, underground tunneling, metro works, and roads helped the order books of entities in this category, resulting in the upgrades.
Businesses found space to breathe and rebound after the pandemic, and curbed capital expenditures. Meanwhile, an organic reduction in balance sheet debt lowered the downside credit risks, noted ICRA. “The rating downgrade rate at 5% remained on a leash in H1 FY23 (6% in FY2022) in comparison with the past 5-year average of 12% and the past 10-year average of 9%,” the report added. With the trends in the upgrades and downgrades, ICRA said that India Inc showed robust and healthy credit quality, despite several external factors such as geopolitical conflicts, erratic energy prices, supply chain disturbances, and effects of the monetary policies across the globe.
K Ravichandran, chief rating officer, ICRA, said India’s GDP could grow by 7.2 per cent in FY23, as compared to the 8.7 per cent growth in FY22, citing a possible pickup in government and central expenditure and an elevated demand in contact-intensive sectors such as hotels and tourism. “A significant hardening of interest rates, however, is a risk factor that would impact discretionary spending, make debt less affordable, and restrain capex. Further, an escalation in geopolitical conflicts, a global recession, and global fund flows (inter-related, not distinct factors) would challenge India’s macroeconomic fundamentals, even if not as much in relation to the other economies. These factors, directly or indirectly, would have a bearing on the credit quality trendlines, looking ahead,” Ravichandran added.
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