Between October 2023 and March 2024 (H2FY24), the credit quality of Indian enterprises remained robust due to government-led capital investment, deleverage balance sheets, and persistent domestic demand. In H2FY24, rating upgrades remained higher than rating downgrades. According to rating agency CRISIL, there were a total of 409 upgrades and 228 downgrades in H2FY24.
In the second half of the financial year 2024 (H2FY24), the credit ratio—which measures the ratio of rating upgrades to downgrades—moderated to 1.79 times from 1.91 times for the April–September 2023 (H1FY24) period.
The view for credit quality for the upcoming fiscal year, which begins in April 2024 (FY25), is still favorable. Upgrades are expected to continue outpacing downgrades, with the continued infrastructure build-out, low levels of corporate debt, and domestic demand serving as key drivers.
"The three key pillars of India Inc's credit quality — deleveraged balance sheets, sustained domestic demand, and government-led capex — kept the upgrade rate elevated in the second half of the financial year 2024," stated Gurpreet Chhatwal, managing director of CRISIL Ratings. For the sixth straight half-year, that is higher than the 10-year average."
Despite a decline in commodity prices, upgraded firms' revenue increased by almost 13% in the 2024 fiscal year, mostly due to an increase in volume. A wide-ranging increase in private capital expenditure is at last apparent, he continued, with most sectors' balance sheets at their healthiest, capacity utilization at peak levels, and anticipated interest rate reductions.
Up to 21 of the 26 business sectors that CRISIL tracks have strong to favorable credit quality outlooks for the current fiscal year (FY25). Strong balance sheets and strong operational cash flows, which are predicted to be on par with or greater than those of FY24, are indicators of this. Companies in the hotel and education sectors, as well as those that make car components, have a stronger prognosis for their asset quality since their credit is backed by strong domestic demand.
According to CRISIL, it also includes industries like capital goods, steel, and cement makers as well as construction firms that profit from government infrastructure expenditure.
CRISILid four corporate sectors - speciality chemicals, agrochemicals, textile cotton spinning, and diamond polishers - are encountering challenges as a result of their business dealings with the current weak global macroeconomic environment. CRISIL said that despite these industries' robust balance sheets, the prognosis for them is steady to modest.
