India Inc’s Financial Health Moderates In H1FY24, Analysts Expect Marginal Dip In H2

The financial health, measured by the credit ratio or the proportion of rating upgrades to downgrades, is further expected to decline marginally in the second half of 2023-24. 

Crisil said that the upgrades remained higher than the decadal average, but the downgrades are also moving up recently, mainly due to difficulties faced by export-linked sectors on dampening demand in the world. 

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India Inc reported a moderation in it’s financial health in the first half of the current fiscal year, Crisil Ratings said on Tuesday. The rating agency noted that the financial health, measured by the credit ratio or the proportion of rating upgrades to downgrades, is further expected to decline marginally in the second half of 2023-24 (FY24). 

The agency clarified that the credit ratio is projected to stay above 1 going ahead as well, which indicated that the upgrades will outpace downgrades. It noted that during the April to September period in FY24, there were 443 upgrades against 232 downgrades, and the credit ratio moderated to 1.91 from 2.91 in the six months prior to the period, reported PTI.

Crisil further said that the upgrades remained higher than the decadal average, but the downgrades are also moving up recently, mainly due to difficulties faced by export-linked sectors on dampening demand in the world. 

 The agency’s managing director, Gurpreet Chhatwal, said, “The moderation in the first half was along expected lines, and the government's infrastructure push and spending are helping corporate India report positive credit ratios. There are challenges on higher inflation, surging global fuel prices, and the erratic rainfall.”

Somasekhar Vemuri, Crisil’s senior director, noted that a marginal moderation is expected in the credit ratio in the fiscal year going forward. The debt-rated credit ratio increased to more than 7 due to upgrades in some large corporates. This ratio represents the movement of India Inc’s loans. 

Commenting on the private capex, Chhatwal stated that while corporate India ‘continues to be circumspect on making investments, though there have been some brownfield bets’. Vemuri noted that elevated interest rates also restricted India Inc from venturing into investments. The rating agency estimated that bank credit growth will moderate to 13 per cent in the current fiscal year, against 15 per cent a year earlier, and attributed the moderation to weaker credit demand from the corporates. 

Crisil in it’s report noted that the retail credit growth is expected to increase to 19-20 per cent along with a quicker growth in riskier unsecured loans. Commenting on the asset quality, the agency stated that it projected an improvement in the decadal best gross non-performing assets ratio of 3.9 per cent in FY24. 

Industry peer, India Ratings, also noted increased upgrades (146) against downgrades (55) during H1FY24, and said that there are signs of moderation. The agency’s head of credit policy group, Arvind Rao, added, “Corporate credit profile performance stayed its expected course in H1FY24. While upgrades continued to outpace downgrades, their intensity has moderated.”

Another agency, ICRA, also echoed the sentiments and said that the first half of the fiscal year recorded rating upgrades twice the number of downgrades, due to domestic consumption and investment-focused sectors. ICRA’s chief rating officer, K Ravichandran, said, “In relation to the global economic conditions, India is currently an island of relative calm. Continued resilience in demand, early signs of an uptick in private capex, besides a supportive policy environment augur well for India's economic activity.”