India Inc is out of the woods, rating agencies say

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Indian companies are having their best year in a decade in terms of financial strength, opening up the possibility of a pick-up in capital spending. With record interest rates and improving credit ratings, the cost of funds coupled with higher product prices could make new projects viable.

The rating agencies unanimously believe that the additional pressure on India Inc’s credit quality appears to have eased significantly.

“The speed of recovery has been remarkable, with a significant acceleration in performance over the past three or four quarters,” said Arvind Rao, Director, India Ratings. “For manufacturing and service companies, the improved credit profile stems from unprecedented deleveraging. ”

Analysis of borrowing companies by rating agencies showed that downgrades greatly exceeded upgrades during the first half of the current fiscal year, which contrasts sharply with the trend observed over the past two years.

The first half of this exercise

Ratings improved 488 companies and downgraded 165 companies. This compares to 294 upgrades and 221 downgrades in the second half of the previous fiscal year.

The ICRA upgraded the ratings of 303 entities, reflecting an improvement in the credit profile of 10% of the entities in the portfolio, with only

163 cases of downgrading during the first half of the current fiscal year.

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

India Inc also continued its deleveraging trend for the sixth consecutive year last fiscal year, with no disruption in cash flow and emergency financing needs caused by the pandemic.

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

“Improving financial profiles provides a cushion for future shocks, including a potential third wave, as well as for re-indebtedness, when the private investment cycle picks up in the medium term.”

Large companies have adapted better to the wake of the pandemic, Crisil says, by reorienting their operating models, cutting costs, controlling debt and conserving liquidity.

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

However, the ICRA rating agency issued a note of caution and said that while concerns about the economic recovery have faded, this does not indicate a return in capital spending.

“Although concerns about the lack of flexibility in central government spending have faded in the face of robust growth in gross direct tax receipts, the recovery in private consumption appears less assured,” ICRA said in a report. report.

“Therefore, the return of the economy to its full capacity and the conditions for a broader growth of private investment spending are not expected in the immediate future. Against this backdrop, a generalized improvement in India Inc.’s credit quality would likely remain reluctant, with rating actions in most sectors continuing to be influenced by entity-specific factors. ”

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