Credit Quality Of Indian Companies Stayed Healthy In H2FY24: Crisil

During the period between October 2023 and March 2024 (H2FY24), the credit quality of Indian companies remained robust, buoyed by streamlined balance sheets, continual domestic demand, and government-driven capital expenditure. Credit Rating Information Services of India (Crisil), a leading rating agency, reported that upgrades in credit ratings surpassed downgrades during this period, with 409 upgrades and 228 downgrades.

However, the credit ratio, indicating the ratio of upgrades to downgrades, slightly moderated to 1.79 times in H2FY24 compared to 1.91 times in H1FY24. Looking ahead to the new financial year starting April 2024 (FY25), the credit quality outlook remains optimistic, with upgrades anticipated to exceed downgrades. This positive trend is attributed to sustained domestic demand, minimal corporate debt levels, and support from ongoing infrastructure development initiatives.

Gurpreet Chhatwal, Crisil Ratings' managing director, emphasised the key factors underpinning India Inc's credit quality, including deleveraged balance sheets, steady domestic demand and government-led capital expenditure. He noted that these factors have consistently driven elevated upgrade rates, surpassing the 10 years average for the sixth consecutive half year.

Despite a softening in commodity prices, companies that experienced upgrades witnessed revenue growth of approximately 13 per cent in FY24, primarily driven by increased volumes. Chhatwal expressed optimism regarding the outlook, highlighting healthy balance sheets across sectors, high capacity utilisation levels and anticipated interest rate cuts, which are expected to facilitate a broad-based acceleration in private capital expenditure.

For FY25, Crisil identified 21 out of 26 corporate sectors with strong to favorable credit quality outlooks. These sectors exhibit robust balance sheets and healthy operating cash flows, anticipated to be on par with or higher than FY24 levels. Notable sectors with promising asset quality outlooks include auto-component manufacturers and companies in the hospitality and education sectors, supported by robust domestic demand.

Furthermore, Crisil highlighted sectors benefiting from government infrastructure spending, such as construction companies, steel, cement and capital goods manufacturers. However, certain sectors, including specialty chemicals, agrochemicals, textile cotton spinning and diamond polishing, face challenges due to subdued global macroeconomic conditions. Despite this, these sectors maintain stable to moderate outlooks, supported by strong balance sheets.