The credit landscape for Indian companies remained robust throughout the latter half of the fiscal year 2024, from October 2023 to March 2024, as per findings by leading rating agency CRISIL. Factors contributing to this resilience included companies' efforts to reduce debt burdens, sustained demand within the domestic market, and significant investments by the government in infrastructure projects.
During this period, the number of credit rating upgrades outpaced downgrades, with 409 upgrades compared to 228 downgrades, highlighting the overall positive trend in credit quality. However, the ratio of upgrades to downgrades moderated slightly to 1.79 times in H2FY24, down from 1.91 times recorded in the preceding half-year period, April-September 2023 (H1FY24).
Looking ahead to the new financial year starting April 2024 (FY25), CRISIL maintains an optimistic outlook on credit quality. The agency anticipates that upgrades will continue to surpass downgrades, driven by factors such as sustained domestic demand, minimal corporate debt levels, and the ongoing push for infrastructure development across the country.
Gurpreet Chhatwal, managing director of CRISIL Ratings, underscored the three key pillars supporting India Inc.'s credit quality: reduced debt burdens, ongoing domestic demand, and government-led capital expenditures. These factors have consistently buoyed the upgrade rate above the 10-year average for six consecutive half-year periods.
Despite recent fluctuations in commodity prices, companies that experienced upgrades saw their revenues grow by approximately 13% in FY24, largely due to increased sales volumes. Chhatwal expressed optimism about the future, citing healthy balance sheets across various sectors, high levels of capacity utilization, and expected interest rate cuts, all of which indicate the potential for a widespread increase in private sector investments.
In FY25, CRISIL's analysis suggests that 21 out of 26 corporate sectors tracked are poised for strong to favorable credit quality outlooks. These sectors exhibit robust balance sheets and healthy operating cash flows, which are expected to match or exceed those seen in FY24. Notable sectors with promising credit quality include auto-component manufacturers, as well as companies in the hospitality and education sectors, all benefiting from sustained domestic demand.
CRISIL also identified sectors poised to benefit from the government's increased spending on infrastructure, including construction companies, steel manufacturers, cement producers, and capital goods manufacturers. These industries are expected to experience positive growth momentum in the coming year.
However, CRISIL also cautioned about challenges faced by certain sectors, including specialty chemicals, agrochemicals, textile cotton spinning, and diamond polishing, which are heavily influenced by global macroeconomic conditions. While these sectors currently face headwinds due to subdued global economic conditions, their strong balance sheets provide stability, leading CRISIL to maintain a stable to moderate outlook for them.
In conclusion, CRISIL's assessment paints a positive picture of the credit quality landscape for Indian companies, supported by a combination of domestic demand, prudent financial management, and strategic government investments. While challenges persist in some sectors, overall resilience and optimism prevail as the country's corporate sector looks towards continued growth and stability in the years ahead.