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Although rating reaffirmations largely reverted to the 10-year average of 80 per cent in FY23 compared to 77 per cent in FY22, the ratings that underwent a change remained skewed towards upgrades, it noted.
As in the previous fiscal, FY23 saw almost three upgrades for every downgrade. As the credit quality improved, the occurrence of defaults was also a lot lower in FY23.
There were only 22 defaults in ICRA’s portfolio in FY23 compared with 42 in FY22 and 44 in FY21.
This trend has been consistent with the general improvement witnessed in the asset quality indicators of banks and non-banking finance companies.
The warehousing and the office segments, where improved leasing activity and rising occupancy levels supported credit profiles, led upgrades in the real estate sector.
In the textiles sector, ICRA upgraded the ratings of several branded apparel manufacturers and retailers with their business volumes benefitting from the tailwinds of formalisation, including the shift in customer preferences towards branded wear.
Inflationary pressure amid weak pricing power was one prominent credit theme that prompted downgrades in FY23.
The debilitating effect of cost inflation was seen across multiple sectors. Rupee depreciation against the US dollar provided another inflationary prop to commodity prices, and hence weighed on profits.
With economic growth in the advanced economies expected to falter in FY24, export-oriented sectors like textiles will likely face demand headwinds in the near term, a phenomenon already in play since the second half of FY23, ICRA said in a release.
Fibre2Fashion News Desk (DS)