Indian corporate credit quality improved markedly in the second half of FY22. Still, high input prices and the withdrawal of pandemic-related relief measures may put pressure in the new year, the rating agencies said on Friday.
CRISIL Ratings, which rates a large number of entities in the financial sector, reported an improvement in the credit ratio – the number of upgrades to downgrades – to 5.04 times in the second half of this financial year, compared to 2 96% to the first half of the tax.
He attributed the improvement to a sustained rebound in demand, which lifted incomes in most sectors to pre-pandemic levels and the government’s proactive relief measures which cushioned the blow of the pandemic.
The agency gave a “positive” outlook on credit quality going forward and expects upgrades to outnumber downgrades in FY23.
However, pressure on input prices, thanks to a surge in commodity prices following the Russian invasion of Ukraine, and the possibility of a withdrawal of pandemic-related relief measures may also moderate the credit ratio.
“Recovering demand, agility in managing supply chains and controlling costs have supported modernized companies’ median operating profit growth of 41% over the past two fiscal years, more than doubling portfolio rate,” said its chairman. and Chief Scoring Officer Subodh Rai said.
Meanwhile, ICRA said credit quality rebounded in FY22 after the economic downturn in FY20 and the pandemic plagued FY21.
The decommissioning of 184 entities lowered the decommissioning rate to just 6% from a ten-year average of 9%, while the upgrade rate was 19% in FY22 thanks to the upgrade of the rating of 561 entities, he said.
The tourism, hotel and catering sector had the lowest credit ratio at 0.4, while the ferrous metals sector at 16 was the best, ICRA said.
India Ratings called FY22 a surprising year of “remarkable recovery”. Its downgrades-to-upgrades ratio was at a ten-year low of 0.3, marking a reversal of the three-year trend where downgrades exceeded upgrades.
The agency said it raised the ratings of 276 companies in FY22, representing 23% of its rated portfolio, while only 86 companies had to downgrade their ratings.
He expects the pace of rating upgrades to moderate in FY23. Indian companies are also expected to experience shrinking margins as the war with Russia continues. Still, the agency’s outlook was described as “stable” across all sectors due to companies’ ability to weather the stress.
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