Credit Profiles Continue To Show Strength Amidst Strife

Performance of ICRA-Assigned Ratings in FY2024

K. Ravichandran, Chief Rating Officer, ICRA,

FinTech BizNews Service   

Mumbai, April 1, 2024: India Inc. bore the direct and the indirect effects of multiple challenges in FY2024, including inflation, rise in borrowing costs, sub-par monsoons, supply-effects of the continued war between Russia and Ukraine, start of another conflict between Israel and Palestine, the Red Sea crisis, besides sluggish exports. Yet, these did not feel heavier as domestic consumption demand across several sectors, government spending on public infrastructure, and healthy balance sheets lent support to the credit profiles of entities.

In the just-concluded fiscal, ICRA upgraded two entities for every entity downgraded, in continuation of the upgrade momentum that had been set in motion in FY2022, on the heels of the first year of the pandemic.

Commenting on the overall developments, Mr. K. Ravichandran, Chief Rating Officer, ICRA, said: “The rating action trends in FY2024 marked the normalization of the rating change rate with the proportion of rating reaffirmations at 80% converging with the past 10-year average. The reaffirmation rate had been between 75%-78% in the preceding two fiscals. Also, a large majority of rating upgrades were driven by company-specific factors such as expansion in market share or order book, improvement in the cost structure, reduction in project risk, or fresh equity infusion that strengthened the balance sheet. Aviation, Hospitality, Auto & Auto Components, and Banks were the only few sectors in FY2024 where the rating upgrades were induced mostly by industry tailwinds.”

ICRA maintains a Positive outlook on the Hospitality sector for FY2025 as well. In contrast, the sectors where industry headwinds played spoilsport in FY2024 and may continue to do so in the near term include Chemicals, Cut & Polished Diamonds, and Bulk Tea.

Overall, as credit profiles continued to improve last year, the number of instances of defaults dipped to five in FY2024, compared with 22 in FY2023 and 42 in FY2022. The severity of rating actions, as measured by the Large Rating Change Rate[1], also reduced to 0.7% in FY2024 from 1.4% in FY2023 and 2.3% in FY2022.

Looking ahead, the macroeconomic conditions in India appear promising which along with relatively stable commodity prices would be supportive of the credit profiles. ICRA expects India’s GDP to expand by 6.5%[2] in FY2025 (ICRA expectations: +7.6% in FY2024) with the average CPI inflation estimated to moderate to 4.6% during the year (ICRA expectations: +5.3% in FY2024), even as the WPI may move back to a low 2-4% print (ICRA expectations: -0.7% in FY2024).

“Corporate India has shown a high resilience to withstanding the rise in borrowing costs over the past two years and is seen to have the capacity to bear the current level of interest rates, before the rate cut cycle likely begins in the latter part of the year. The asset quality of banks and NBFCs has also been at its decadal best with the profitability and the capitalisation indicators expected to remain healthy in the near term. The series of proactive actions taken by the regulators (RBI and SEBI) in the recent years would work to further strengthen the financial system and the capital markets. The key downside factors that could throw a spanner in the works to this radiant prognosis would be how the monsoons pan-out this year and how the complicated geopolitical landscape evolves”, added Mr. Ravichandran. 

Sectors that witnessed the highest ratings activity in FY2024