Crisil upgrades credit quality outlook of India Inc on sustained demand recovery
Premium- Crisil is optimistic that the increase in coverage of vaccinations may also mitigate the impact of a third wave if it comes about
MUMBAI : Rating agency Crisil has upgraded the credit quality outlook of India Inc for financial year 2022 to positive from cautiously optimistic, led by sustained recovery in demand following covid second wave disruptions. It is optimistic that the increase in coverage of vaccinations may also mitigate the impact of a third wave if it comes about.
“Our outlook revision factors in strong economic growth, both domestic and global, and containment measures that are localised and less stringent compared with the first wave, which should keep domestic demand buoyant even if a third wave materialises. We believe India Inc is on higher and stronger footing," Subodh Rai, chief rating officer, Crisil Ratings said.
For all the companies rated by Crisil, the credit ratio in April-July improved to more than 2.5 times. It had touched a decadal low of 0.54 time amid the first wave in the first half of fiscal 2021, before recovering to 1.33 times in the second half, buoyed by a rebound in demand. Credit ratio is the number of upgrades to downgrades.
Among sectors with the most rating upgrades, construction and engineering, and renewable energy benefited from the government’s thrust on infrastructure spending, while steel and other metals gained from higher price realisations and profitability, the rating agency said.
Pharmaceuticals and specialty chemicals continued to see buoyancy backed by both, domestic and export growth.
However, contact-intensive sectors such as hospitality and education services continued to bear the brunt of the pandemic and have had more downgrades than upgrades. According to Crisil, targeted relief measures by the Reserve Bank of India (RBI) and the government amid the second wave have cushioned credit profiles in some sectors.
“Besides regulatory relief measures, a secular deleveraging trend has provided India Inc the balance sheet strength to cushion impact on their credit profiles. The median gearing for the Crisil Ratings portfolio (excluding the financial sector) declined to 0.8 time at the end of fiscal 2020 and then to an estimated 0.7 time in fiscal 2021, from 1.1 times in fiscal 2016," said Somasekhar Vemuri, senior director, Crisil Ratings.
According to the agency, financial sector is also better placed today than a year back, given less stringent lockdowns and the systems and processes put in place to manage collections amid the restrictions. Support from the government and the RBI through emergency credit lines, moratorium, and one-time debt restructuring for pandemic-affected companies have helped banks and non-banks curb a rise in non-performing assets.
“Credit profiles in the financial sector have been supported by higher capitalisation levels, better provisioning cover, and increased access to liquidity. That said, unsecured retail, and micro, small and medium enterprise loan segments are likely to witness higher stress over the near term," it added.
Crisil said that key monitorables from here would be a fat tail in the second wave, or an intense third wave. Other risks to the positive credit outlook include regional and temporal distribution of rainfall and its implications for sustained demand recovery. Small businesses, in particular, will be more vulnerable to any slack in demand.
Never miss a story! Stay connected and informed with Mint. Download our App Now!!