Favourable biz environment drives firms' credit upgrades in H1FY25

Export-intensive segments vulnerable to global risks, warn rating agencies

Backed by conducive business and economic conditions, the number of credit rating upgrades surpassed that of downgrades by higher proportion for Indian corporates in the first half of the current financial year (H1FY25). The outlook for corporate credit quality in the second half too remains robust, said rating agencies.

While exuding confidence in the strength of India Inc’s credit quality, rating agencies remained watchful of some sectors, especially export intensive, due to risks from global geopolitical and geo-economic factors.

In a statement, CRISIL Ratings said there were 506 upgrades and 184 downgrades in its rating universe. Ratings credit ratio, or the proportion of rating upgrades to downgrades, increased 2.75 times in H1FY25 from 1.79 times in the second half of last financial year (H2FY24).

CareEdge Ratings said overall there were 215 upgrades and 133 downgrades across sectors in H1FY25, with export-oriented sectors like textiles and chemicals experiencing higher downgrades.

Suparna Banerji, associate director at India Ratings, said: “Upgrades were seen across sectors. The government’s push on investments continued to support sectors such as infrastructure, construction and capital goods that witnessed a high number of upgrades.”

“Downgrades were seen primarily in sectors that were impacted by volatile raw material prices or uncertain export demand, such as textiles, or due to individual issuer-specific stress, such as services or capital goods,” Banerji added.

Economic and business conditions are expected to remain conducive in the busy season, which starts from October 2024 and will continue till March 2025. Somasekhar Vemuri, senior director, CRISIL Ratings, said: "The positive credit quality outlook on India Inc is largely led by government infrastructure investment and private consumption, also reflected in the healthy GDP growth expected this financial year. Particularly, the expected decline in interest rate will support domestic demand as inflationary pressures subside.”

Seconding Vemuri’s assessment, Sachin Gupta, executive director and chief rating officer at CareEdge Ratings, said looking ahead, the upcoming festive season, with its potential for increased rural demand and consumer spending, could enhance the credit profile in H2FY25.

Striking a note of caution for days ahead, K Ravichandran, chief rating officer, ICRA, said there are some emerging pockets of concern like expansion in household debt and growth in unsecured lending, with early signs of rising delinquencies in unsecured retail and microfinance segments. Also, some sectors that have export dependency, such as chemicals and cut-and-polished diamonds, continue to face demand and profitability challenges, Ravichandran added.

Despite positive signs, global challenges persist. Weak export demand, economic slowdown in China, elevated freight costs — particularly due to the Red Sea crisis — and ongoing geopolitical risks continue to pose downside risks, said Gupta of CareEdge.