Crisil upgraded 817 firms and downgraded 434 in the first half of FY18 for a credit ratio of 1.88 times, compared with 1.22 for the whole of FY17. ICRA upgraded 304 entities and downgraded 261 for a credit ratio of 1.2 times, similar to its FY17 assessment.
A credit ratio above 1 indicates upgrades outnumbering downgrades. Crisil said that for the first time in five years, the credit ratio and debt-weighted credit ratio were above 1 on a rolling 12-month basis.
Assessing the two ratios on a longer timeframe, such as the 12-month rolling basis, obviates period bias and indicates that the trend could become structural in nature.
"The credit ratio stood at 1.59 times and the debt-weighted credit ratio at 1.94 times, indicating that the trend of recovery in credit quality has sustained for a year now," said Pawan Agrawal, chief analytical officer, Crisil Ratings. "The improvement has come about because... corporates kept away from capital expenditure, given substantial headroom in capacity utilization. We expect this trend to continue until demand firms up."
By contrast, ICRA said the volume of debt downgraded increased compared with last year, and the average volume of debt downgraded per entity also increased.
"At Rs 2.9 lakh crore, the volume of debt downgraded.... was over 70 per cent higher. Of the debt downgraded, almost 50 per cent pertained to the banking and the financial sector," said Anjan Ghosh, chief rating officer, ICRA, adding that credit quality pressures have become more broad-based.
Metals, power and telecom were the largest contributors to ICRA downgrades. The debt-weighted credit ratio for ICRA-rated companies fell to 1 from 1.7 times in FY2017, indicating continued pressure on credit profiles.
Crisil said that the trend was positive but not buoyant. It expects corporate credit quality to recover, driven by improvements in balance sheets and lower rates, stable working capital cycles, firm commodity prices and better domestic demand.
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