Rating agency Crisil on Monday said Indian corporates’ credit profile has moderated in the first half of the current fiscal when compared with the same period of FY18, although it has slightly improved compared with the preceding six months.
Crisil’s credit ratio (which is number of upgrades to downgrades) stood at 1.68 times in the first half of FY19, compared with 1.88 times and 1.45 times in the first and second halves of FY18, respectively, the agency said.
“For the first time in five years, the credit ratio of investment-linked sectors, at 2.15 times, is higher than the overall credit ratio,” said Somasekhar Vemuri, Senior Director, Crisil Ratings.
He added that sectors such as steel, construction and industrial machinery saw some uptick as they could benefit from buoyant commodity prices as from the government’s infrastructure spending, even as private investments lag.
Crisil expects investment-linked sectors to be driven by public spending going further, as revival of private capex is yet to be seen. According to Vemuri, corporates are waiting for the outcomes of the elections next year as well as for signs of improvement in capacity utilisation before they could take decisions on fresh investments. “Sometime next fiscal we could expect apex to pick up,” Vemuri suggested.
As for domestic consumption-linked sectors, Crisil noted, the demand growth drivers remain strong, but rising interest rates could act as a mild dampener. Export-linked sectors have seen strong growth in recent months backed by buoyancy in the global economy and a sliding rupee.
Rupee volatility impact
Besides that, India Inc faces a volatile rupee, rising interest rates and a potential risk of tariff disputes escalating into full-blown trade wars. Crisil’s analysis of around 2,500 companies having foreign currency exposure shows that the impact of recent rupee volatility on profitability will be modest.
The top 10 sectors with high foreign currency exposure, which include oil and gas, power and telecom, will see their net profit margins eroding this fiscal by up to 150 basis points, the agency noted.
Crisil said as the credit and equity markets turning volatile has brought non-banking finance companies and housing finance companies into sharp focus.
“The asset liability maturity profiles of Crisil-rated non-banks currently remain consistent with their ratings, even as their dependence on short-term capital market instruments has risen in the past two years,” Krishnan Sitaraman, Senior Director, Crisil Ratings, said. He added that while asset quality and capitalisation are comfortable at present, continued market disruption can constrain access to funding, and it will be a key sensitivity factor for both growth and spreads of NBFCs.