India Inc's credit quality continues to improve in H1, may moderate going ahead: Crisil

India Inc's credit quality showed further improvement in April-September period with the ratio of upgrades to downgrades inching higher. The credit ratio's improvement to 5.52 in H1FY23 as compared to 5.04 in H2FY22 was driven by leaner balance sheets led by healthy cash flows and muted investments, Crisil Ratings, which rates 6,800 companies, said.

However, the agency clarified that the data may not be fully representative as many small businesses with outstanding ratings have turned non-cooperative in sharing data on a continued basis which can be driven by adverse financial health. "India Inc has emerged stronger post-pandemic," its managing director Gurpreet Chhatwal said, exuding confidence that the corporate India can weather the current storm caused by global events like higher inflation and monetary tightening which will hurt India's exports.

Crisil's senior director Somasekhar Vemuri said there can, however, be a moderation in the credit ratio going ahead due to some of the challenges faced by companies. During the first half of the fiscal year, the credit ratio moved ahead majorly driven by the infrastructure sector, which contributed a third of the upgrades, the agency said, attributing the same to higher project work being undertaken and improvement in project clearances and payments.

The six months saw 569 upgrades and 103 downgrades, while ratings on 80 per cent of the companies being reaffirmed, it said. The ongoing interest rate tightening may result in some of the companies going slow on investments, and the higher interest costs will have an adverse impact on the renewables sector the most with the project viability itself coming under pressure, its chief ratings officer Subodh Rai told reporters.

He said there have been investment announcements by steel and cement players, along with those getting benefits under the production linked incentive initiative of the government, but a broader capex cycle like the one seen in 2012-13 is some time away.

For the financial sector, it gave a 'stable' outlook and added that while the gross non-performing assets ratio may moderate on an overall basis, exposures to small businesses face a risk of higher NPAs. Its deputy chief ratings officer Krishnan Sitaraman said Crisil expects a fourth of the restructured advances to micro, small and medium enterprises to slip into NPA, but added that there are positives for the overall sector in form of higher credit growth at up to 15 per cent, stronger capital buffers and improved profitability.

The agency's corporate credit outlook based on 43 sectors accounting for 70 per cent of outstanding debt classified 13 sectors having 18 per cent as the most buoyant while the remaining were classified as neutral to positive.

Export-oriented sectors such as textiles, pharmaceuticals and information technology will see some moderation in cash flows owing to slow down in end-user markets, it said, adding that agrochemicals, dairy, education services would also see a moderation in their performance due to elevated costs and inability to fully pass them on.

Meanwhile, India Ratings and Research said the strong rating upgrade momentum continued in the first half despite deteriorating macroeconomic conditions, with 159 upgrades and 40 downgrades. Healthy financial profile, improving business performance and availability of liquidity helped the ratings, its head of credit policy group, Arvind Rao, said. Icra Ratings said in H1, it saw 250 upgrades and 76 downgrades.