The number of rating upgrades moderated in the second half of the 2010-11 fiscal, while the number of downgrades also increased gradually.
This was unlike the situation in the 2009-10 fiscal when there had been a consistent increase in rating upgrades, said rating agency ICRA.
In a press release issued today, ICRA said that the number of rating upgrades as a percentage of the opening issuers rose to 13.78 per cent in 2010-11, from 9.24 per cent in 2009-10. Sectors that accounted for the bulk of the downgrades included real estate, textiles, engineering and infrastructure; while sectors that saw most of the upgrades included textiles, metals and mining, gems and jewellery, real estate and construction and auto ancillaries, the ICRA report said.
About the increased number of downgrades in second half of the year, Mr Naresh Takkar, Managing Director and Chief Executive Officer, ICRA, said, “The key factors prompting the rating downgrades during H2 2010-11 included temporary delays or defaults in repayment; delays in project implementation; and reduced demand in certain key markets. The extent by which these factors, among others, influence the credit profile of the ICRA-rated entities will however be determined eventually by their individual strengths and weaknesses.
“The rating upgrades during H2 2010-11 were triggered by sustained improvement in operating performance; better demand conditions in certain key markets; better profitability; shorter working capital cycles; and improved capital structures.”
The factors that are likely to continue to impact the credit profiles of issuers include moderation or slowdown in demand, compression of operating profitability because of cost factors, high interest rates and lacklustre capital markets constraining access to equity, among others, the report said.