Ratings downgrade ratio hits new high of 14.3: Centre for Monitoring Indian Economy

The fear of a downgrade by international ratings agencies may have ebbed a bit with a series of reform initiatives and the fall in current account deficit. But the proportion of downgrades of firms by ratings agencies hit a new high in September this year.

Though ratings agencies have downgraded only 450 companies during the month, which is lower compared to the previous months, the proportion of companies downgraded has increased. The total ratings-downgrades ratio stood at 14.3 in September, a new high, data with the Centre for Monitoring Indian Economy (CMIE) showed.

“Rating downgrades continued to exceed upgrades in H1 (first half) of 2012-13 , which is in line with our expectations outlined six months ago,” said Ramraj Pai, president, Crisil Ratings. “This is primarily on account of slowing demand and pressure on liquidity, because of stretched working capital cycles ,” he said.

The ratings downgrade ratio, which remained in single digits for almost the entire 2011, started to increase in the current year, CMIE data showed. It has stood above double digits in five out of six months of the current financial year.

“Pressure points continue to exist for companies that want to raise funds,” said Naresh Thakkar, MD & CEO, ICRA Ratings. “Macro-level challenges continue to exist and we have come across many companies which are facing working capital issues, which results in lower cash flows.”

“Confidence in growth is not yet at levels to drive big capex (capital expenditure) although capacity utilization levels are well above the trigger levels,” an analyst at Morgan Stanley India said.