India Inc is out of the woods, say rating agencies

Indian corporates are having their best year in a decade in terms of their financial strength opening up the possibility of a revival in capital expenditure. Given the record low interest rates and an improved credit rating, the cost of funds coupled with higher product prices could make new projects viable.

Rating agencies unanimously believe that the incremental pressures on the credit quality of India Inc seem to have largely subsided.

“The speed of recovery has been remarkable, with performance picking up a meaningful pace in the last three to four quarters,” said Arvind Rao, Director, India Ratings. “For manufacturing and service corporates, the improvement in credit profile is from unprecedented deleveraging.”


Analysis of corporate borrowers by rating agencies showed that downgrades far exceeded upgrades in the first half of the current fiscal year, which is in stark contrast to the trend witnessed in the past two years.

The first half of this fiscal Crisil Ratings upgraded 488 corporates and downgraded 165 firms. This compared with 294 upgrades and 221 downgrades in the second half of the previous fiscal.

ICRA upgraded the ratings of 303 entities, reflecting an improvement in the credit profile of 10% of the portfolio entities, with only
163 instances of downgrades in the first half of the current fiscal year.

India Ratings and Research upgraded the ratings of 150 issuers, while downgrading ratings of only 49 issuers during this period.

India Inc also continued its trend of deleveraging for the sixth straight year in the previous fiscal, uninterrupted by cash-flow disruptions and emergency funding requirements caused by the pandemic.

“A strong run of primary issuances in equity markets also supported the balance sheet strengthening,” Crisil Ratings said in a report.

“Improving financial profiles provide a cushion for future shocks, including a potential third wave, as well as for re-leveraging, when the private capex cycle resumes over the medium term.”

According to Crisil, large corporates have adapted better the wake of the pandemic by reorienting their operating models, pruning costs, keeping leverage under control, and conserving liquidity

Another key factor has been the increasing pace of vaccination. Till mid-September, India had administered almost 77 crore vaccine doses. Around 20% of the adult population is fully vaccinated, while nearly 70% has received at least one dose.

Though, rating agency ICRA sounded a note of caution and said that while concerns around economic recovery have receded, it does not indicate a return of capital expenditure.

“Though the concerns around the lack of flexibility in Central Government spending have waned in view of the robust growth in the gross direct tax collections, the recovery in private consumption seems less assured,” ICRA said in a report.

“Accordingly, the return of the economy to full capacity and the enabling conditions for a wider growth in private capital expenditure is not expected in the immediate term. Against this backdrop, a broad-based improvement in the credit quality of India Inc. would likely remain reticent, with rating actions in most sectors continuing to be influenced by entity-specific factors.”