According to Crisil Ratings, the credit ratio – the proportion of rating upgrades to downgrades – moderated in the first half of this fiscal to 1.91 from 2.19 in the second half of last fiscal. A ratio above 1 means upgrades outnumbering downgrades. The rating agency upgraded 443 corporates while downgraded 232 companies.

The first-half upgrade rate dipped marginally to 12.7 per cent compared with 13.46 per cent in the preceding half, Crisil said. However, it continues to be above the decadal average of around 10 per cent. The upgrades were driven by an expected expansion in cash flows this fiscal for sectors linked to domestic demand and for those benefiting from high government spending. These sectors, such as infrastructure, services and consumables, kept the overall upgrade rate elevated, the rating agency said.

Crisil said the overall downgrade rate, meanwhile, rose to 6.65 per cent (6.14 per cent in the previous half), inching closer to the average of nearly 7 per cent for the past decade.

“The downgrade rate was seen inching up for export-oriented sectors as well, even as strong balance sheets somewhat cushioned the impact of heightened risks overseas,” the rating agency said.

Icra Ratings said in H1 FY24, both the investment grade as well as the non-investment grade categories showed a net improvement in their credit profiles, even as the pace of improvement moderated in comparison with the previous two fiscals.

While the upgrade rate of the investment grade ratings moderated to 15 per cent (annualised) in H1 FY2024, printing below the past 10-year average of 16 per cent, against a high of 21 per cent in FY2022, the downgrade rate at 6 per cent (annualised) remained well below the 10-year average of 8 per cent, it said.

Six sectors, that constitute 37 per cent of Icra’s rated portfolio, accounted for almost half of the total instances of upgrades in H1 FY2024 – hospitality, auto components, realty, power, roads, and financials

In April-September, India Ratings and Research upgraded ratings of 146 issuers, representing 17 per cent of the reviewed portfolio. Rating downgrades were seen in only 55 issuers. The corporate downgrade-to-upgrade (D/U) ratio remained low at 0.38 for H1 FY24 compared to 0.26 in FY23 and 0.25 in H1 FY23.

Its Head (Credit Policy Group) Arvind Rao said while upgrades continued to outpace downgrades, their intensity has moderated in line with the expectations outlined in our earlier report for FY23. Downgrades on the other hand have only marginally moved up.

“Manufacturing and service corporates rating upgrades intensity, particularly the large corporates, has slowed down for one year now; the D/U ratio more than doubled to 0.45 in H1 FY24 compared to 0.22 last year,” Rao said.

Infrastructure and financial corporates have largely maintained their rating upgrade intensity, he said.

Crisil Ratings said in terms of capex, while government spending has been rising, the private sector has not driven a meaningful pick-up.

The agency’s Managing Director Gurpreet Chhatwal said for domestic and infrastructure-linked sectors, the conditions now seem ripe for the much-awaited private capex cycle to restart, given the increase in capacity utilisation, deleveraged balance sheets and steadfast demand.

However, with only brownfield expansions seen in some pockets, a significant uptick in private sector capex may be a few quarters away as India Inc remains circumspect about higher interest rates and inflation leashing demand, he said.

BOX: September manufacturing PMI slows to 5-month low

Mumbai: India’s manufacturing activity eased to a five-month low in September as new orders moderated, impacting the production growth.

The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) eased to 57.5 in September from 58.6 in August. Although the lowest for five months, the reading remained firmly above the no-change mark of 50 and its long-run average (53.9), therefore signalling a sharp rate of expansion.