 "Moody's, rating, credit")
Corporate India's credit ratings remained stable in the first half of the financial year ending in September 2023 (H1FY24), supported by robust domestic demand, deleveraged balance sheets, the China+1 strategy, and a focus on infrastructure spending by the government. Asset quality remained strong despite global challenges, according to CARE Ratings.
In a statement, the rating agency revealed that it upgraded the ratings of 217 entities and downgraded 130 entities during H1FY24. The credit ratio, which gauges the number of upgrades relative to downgrades, normalised to 1.67 during this period.
This was in line with expectations, moderating from 2.72 in the second half of FY23 (H2FY23) and 3.74 in the first half of FY23 (H1FY23). The ratio now slightly exceeds its 10-year average of 1.54.
However, CARE Ratings advised caution going forward. It highlighted that key variables affecting credit risk include rising concerns over food inflation, weather uncertainties, fluctuating crude oil prices, and geopolitical tensions.
Sachin Gupta, Executive Director and Chief Rating Officer at CareEdge Ratings, noted that the Indian economy has shown resilience. "Gross Domestic Product (GDP) recorded a strong growth rate of 7.8 per cent in the first quarter of FY24 (Q1 FY24), up from 6.1 per cent in the previous quarter," he said.
This uptick was fuelled by a favourable base effect, robust growth in the services sector, and sustained momentum in manufacturing and construction. Nonetheless, GDP growth is expected to temper in upcoming quarters due to base normalisation.
The credit ratio for Investment Grade companies also moderated, dropping from 2.99 in H2FY23 to 1.98 in H1FY24. However, the ratio remains robust, indicating that these portfolios have demonstrated high resilience.
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CARE Ratings also pointed out that weakening global demand has begun to affect export-focused sectors. Upgrades nonetheless outnumbered downgrades, especially in sectors like auto, iron and steel, real estate, hospitality, healthcare, and logistics.
Downgrades were predominantly seen in small and mid-sized companies with weaker credit profiles, notably in sectors like chemicals, textiles, active pharmaceutical ingredients/bulk drugs, and agro-based industries, said Ranjan Sharma, Senior Director at CareEdge Ratings.
In the infrastructure sector, the credit ratio held strong at 2.21 in H1FY24, although it moderated from 3.10 in H2FY23. The transport infrastructure segment led the way, followed by the power sector.
The construction sector's performance was mixed, driven mainly by project commissioning in the roads Hybrid Annuity Model (HAM) and solar power generation, along with refinancing at improved terms, according to Rajashree Murkute, Senior Director at CareEdge Ratings.
Murkute emphasised that the transport sector's outlook remains positive due to a robust pipeline of HAM projects and expected recovery in Engineering, Procurement, and Construction (EPC) margins. Moreover, a growing focus on sustainable energy sources in the face of rising power demand bodes well for the expansion of Renewable Energy capacities and asset monetisation.
- Investment in infrastructure
- Deleveraged balance sheets
Pain points
- Export slowdown
- Volatility in commodity prices
- Geopolitical uncertainties
