Rising cost pressures, moderating demand and high interest costs would limit rating upgrades in the second quarter, according to rating agency Icra.
Deteriorating conditions had hit sectors like real estate & construction and metals & mining the hardest in the first quarter.
Naresh Takkar, managing director and chief executive of the rating agency said the operating environment was challenging for companies and it was unlikely that a significant rise in upgrades would be seen.
Rising costs could dent operating profitability and the inability to pass on the higher costs due to a rise in competitive intensity, together with delays in project implementation and reduced profitability of new projects, would contribute to rating downgrades. Any improvement in ratings is likely to be due to company-specific factors like stabilisation in projects and infusion of capital, Takkar said.
About 68 per cent of the downgrades in the first quarter were seen for entities clubbed under the non-investment grade at the beginning of the quarter, the share of which was 59 per cent in the first quarter of the previous financial year. This shows the majority of the downgrades in the first quarter involved issuers with relatively weaker credit profiles.
