Credit Quality Projection Positive For Indian Corporates In Apr-Sep Period In FY25: CRISIL Ratings

Certain export-linked sectors like seafood received a higher downgrade rate owing to weak global demand or high-cost inventory and this in turn affected the profitability of the sector

The credit quality outlook for Indian corporates remained positive for the first half of the current fiscal year, CRISIL Ratings said on Monday. The ratings agency noted that the estimates regarding the credit quality remained favourable as upgrades continued to outpace downgrades.

The agency assigned 409 rating upgrades and 228 downgrades in the 2023-24 fiscal year, reported PTI. Certain export-linked sectors like seafood received a higher downgrade rate owing to weak global demand or high-cost inventory and this in turn affected the profitability of the sector. 

“India Inc's credit quality outlook is positive for the first half of fiscal 2025 with upgrades expected to outnumber downgrades. Multiplier effect of government capex will continue to drive infrastructure and linked sectors. Healthy balance sheets will continue to support the credit quality outlook, with capex funding seen prudent,” the rating agency said.

CRISIL added that the outstanding bank credit is projected to surpass Rs 200 lakh crore by March 2025, from Rs 172 lakh crore a year earlier, even as credit growth momentum is set to witness some slowdown. It noted that the Indian economy is anticipated to remain the fastest-growing large economy in the 2024-25 fiscal year with a GDP growth rate of 6.8 per cent.

However, it stated, that the growth is expected to slow down from 7.6 per cent projected for the 2023-24 fiscal year (FY24) as surging interest rates and muted fiscal impulse will impact demand. 

Elaborating further on the findings, Gurpreet Chhatwal, MD, CRISIL Ratings, said, “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 FY24. With balance sheets in most sectors at their healthiest, capacity utilisation around peak levels, and expected interest rate cuts, a broad-based pick-up in private capex is finally in sight. The sectors with export linkages could have some uncertainties around them.”

Krishnan Sitaraman, Senior Director and Chief Ratings Officer, CRISIL, added, “There is a likelihood of interest rate cuts globally in 2024. We expect the RBI to cut interest rates in the second half of the current fiscal. Credit quality is likely to remain positive.”

For FY25, the rating agency predicted about 21 out of 26 corporate sectors to clock strong to favourable credit quality outlook, helped by healthy balance sheets and operating cash flows. These sectors include auto-component manufacturers, firms in the hospitality and education sectors, sectors reaping the benefits of the government’s infrastructure spending, along with construction firms, and capital goods manufacturers, among others.