India Inc’s credit profile gets stronger during Covid-19 pandemic

The credit profile of Indian companies It appeared to have strengthened as rating upgrades outpaced downgrades in the first half of fiscal 2021-22 (H1FY22) despite the devastating second wave of Covid-19, according to rating agencies.

The improvements were spread across sectors and the credit quality outlook was positive, indicating prospects for further improvement with increased economic activity. However, rating agencies cautioned that underlying business fundamental metrics in most sectors are unlikely to exceed pre-Covid levels anytime soon. The traction seen in updates of late doesn't have to evoke a pigeonhole conclusion of a broader rally, rating agency ICRA said.

CRISIL Ratings, meanwhile, saw its credit ratio (from upgrades to downgrades) increase further in H1FY22, with 488 upgrades and 165 downgrades. This was the second consecutive increase in the credit ratio, at 2.96 times. It had risen to 1.33 times in H2FY21 from 0.54x in H1FY21.

ICRA improved the ratings of 303 entities, with only 163 downgrades in the first half of fiscal year 22. This was a notable improvement over the torrent of downgrades in the past (483 in fiscal year 21 and 584 in fiscal year 2020). .

"We have overcome the period of greatest economic uncertainty and the excessive pressures seen on the business and the financial risk profiles of the entities," he said.

Indian Ratings it upgraded 150 issuers, while downgrading only 49 issuers. This is in stark contrast to the trend seen in the past two years, when markdowns far exceeded upgrades. The corporate rating upgrade index (DU index) was at a low of 0.3 in H1FY22 (2.1 in H1FY21 and 1.4 FY21).

Suparna Banerji, Associate Director of India Ratings, said: “Fears of an uneven sector recovery have largely dissipated. Positive rating actions were seen largely across all sectors, indicating a broader economic recovery. In stark contrast, last year's positive rating actions were limited to a handful of sectors. "

Explaining the greater variety of updates, Gurpreet Chhatwal, managing director of CRISIL Ratings, said that sectors linked to infrastructure, such as roads, renewable energy and construction and engineering, continue to benefit from public spending. They are experiencing a strong order book and improving the pace of execution.

The service sector is also finally turning the corner after a debilitating FY21. Its credit index rose to more than 1 for the first time since the outbreak of the pandemic, thanks to select sectors, CRISIL said.

Regarding downgrades, contact intensive sectors continued to face credit pressures with ICRA, having downgraded several entities in the hospitality and aviation sector in H1FY22. The energy, real estate and textiles sectors also contributed heavily to the downgrades in the past six months.

Banks and non-bank finance companies (NBFC) pressures on asset quality are expected to increase over the course of fiscal year 22 from the retail and micro, small and medium-sized enterprises (MSMEs) segments, ICRA said.

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