After a dramatic free-fall in fiscal 2009, the credit quality of Indian companies has now started to stabilise led by positive stock market conditions and the Government's monetary easing, a study by rating agency Crisil Ratings said.
CRISIL's Modified Credit Ratio (MCR) increased to 0.88 for the first-half of 2009-10, after dropping to a nine-year low of 0.86 in 2008-09, the agency said in a report.
"Companies have easier access to funds, as a result of the Governments fiscal and monetary easing, and positive stock market conditions; in addition, lower commodity prices have led to lower working capital requirements," Crisil said.
However, Crisil expects the recovery in credit quality to be gradual, and may not necessarily be smooth.
"There are signs that both the monetary and fiscal easing and the lower commodity prices are temporary. Additionally, unlike in the late 1990s, we see no prospect of a sudden and sustained upturn in economic conditions to lift corporate performance," CRISIL, Senior Director, Raman Uberoi, said.
Crisil said the Government was looking to reverse its "present supportive stance" of low interest rates and liberal monetary policies.
The timing and extent of these measures is likely to have a significant bearing on the pace and extent of economic recovery after thecurrent phase of stabilisation, it added.
"The return of stability to the global economy has also meant that commodity prices have retraced 25 to 35 per cent of their decline from the peak levels of mid-2008," the report said.
"Access to funds has eased considerably, but there is significant uncertainty with respect to exchange rates and consumer demand. Large exchange rate movements can hit export-dependent sectors hard, and domestic demand can be affected by rising prices in general and food prices in particular," CRISIL Ratings, Director, Ajay Dwivedi, said.
"The Reserve Bank of India's window for restructuring of bank assets helped many companies avoid distress over the last 12 months. Looking ahead, we see a long and bumpy road for recovery in corporate credit quality,"
