Rating agencies see a sharp rise in upgrades in Apr-Sep

MUMBAI: Rating agencies are seeing a sharp rise in the upgrades , reflecting a buoyant economy.

While Crisil witnessed 253 upgrades during the first half of FY11, Icra witnessed 215 upgrades during the period. In comparison, they (Crisil and Icra) upgraded only 23 and 43 entities, respectively , in the year-ago period. Crisil’s modified credit ratio (MCR — the ratio of upgrades plus reaffirmations to downgrades plus reaffirmations) has exceeded one for the first time after a gap of three and a half years.

The upgrades for both rating firms were largely driven by a surge in ratings in infrastructure, construction , auto and auto ancillary industries.

Ratings firms attribute this surge in upgrades to improved demand, better profitability, shorter working capital cycles; improved capital structures and benign outlook for the operating environment and the financial markets. Both debt and equity are more readily available now than they were 18 months ago, from domestic and international markets.

“These trends indicate that the credit quality of India’s companies, which had begun to improve in 2009-10 , has remained buoyant in 2010-11 ,” said Raman Uberoi, senior director- ratings, Crisil.

An analysis of the aggregate financial performance of listed companies by Crisil indicates that the profitability of these entities is under pressure on account of increase in raw material costs and deterioration in pricing power due to increased competition.

Even the economy may not be as buoyant, as Icra has noted that growth is likely to be slightly dampened, as interest rates harden. The recent trend of rupee appreciation may impact margins and the volume growth of export-oriented sectors.