India Inc's credit quality recovers in H1 FY17: CRISIL

Value of debt upgrades more than downgrades

Credit quality of Indian companies seems to be turning around. For the first time in five years, the value of the debt upgraded was higher than the value of the debt downgraded, CRISIL said.

The value of rated debt upgrade was Rs 72,000 crore in April-September 2016, against downgrades of Rs 40,000 crore in the year-ago period.

On the trigger behind the trend, Chief Analytical Officer of CRISIL Ratings Pawan Agrawal said perhaps there was less intense pressure on commodity-linked sectors, especially metals. This follows stabilisation of prices and policy support in the form of anti-dumping duty and minimum import price from the government, he said. However, it would be too early to celebrate the shift in trend. Sustainability of this trend would be key, given the several headwinds that India Inc is facing, CRISIL said in its rating round-up for April-September 2016.

The debt downgrades in value terms was expected to be more in the second half of FY17 because of continuing pressure on investment-linked sectors.

There were 646 upgrades to 553 downgrades in the first half of FY17. Upgrades were concentrated in the domestic consumption-linked sectors such as auto ancillaries and packaging, and in the export-linked pharmaceutical sector.

Downgrades were mainly in the investment-linked sectors such as construction, industrial machinery, real estate and metals. Financial (capital structure, debt protection and liquidity) and business (demand, profitability and working capital cycle) reasons contributed equally to the rating actions.

Senior Director of CRISIL Ratings Somasekhar Vemuri said the focus would now shift to sustainability of the improvement in credit quality. The investment cycle is yet to pick up, there hasn’t been a material deleveraging in corporate balance sheets, and weak assets continue to mount in banking. To boot, global growth is also weak.