India Inc continued showing resilience in H1FY25, with rating upgrades outpacing rating downgrades for fourth year in a row, according to multiple credit rating agencies.

Domestic rating agency ICRA said credit ratio of its rated companies — which essentially denotes ratio of the number of rating upgrades to downgrades — stood at 2.2 times in H1FY25 as against 2.1 times in FY24.

This was on account of largely benign operating environment, higher demand in select sectors, improvement in risk profile of corporates as assets transitioned from project stage to operational stage and general deleveraging in sector.

Credit quality

K. Ravichandran, Chief Rating Officer at ICRA, said the credit quality of India Inc remains steady, and in the past six months, there hasn’t been an imperative to change the outlook on any sector.

However, there are certain emerging pockets of concern, like an expansion in household debt, growth in unsecured lending, with early signs of rising delinquencies in unsecured retail and microfinance segments.

“Also, some sectors that have export dependency, namely, chemicals and cut & polished diamonds, continue to face demand and profitability challenges,” he said. “These apart, several global risk factors are at play – China faces demand-supply mismatches because of which credit risk transmission is a possibility for the commodity producers in India through the price channel. Geopolitical developments also add to the uncertainty,” he added.

Rating agency Crisil , too, said that there were a total of 506 rating upgrades and 184 downgrades in H1FY25, resulting in a high credit ratio of 2.75 times.In H2FY24, Crisil’s credit ratio stood at 1.79X. The annualised upgrade rate of 14.5 per cent outpaced the average of 11 per cent for the past decade, while the downgrade rate of 5.3 per cent was lower than the 10-year average of 6.5 per cent. Notably, the rating reaffirmation rate continued to be stable at 80 per cent.

Subodh Rai, MD at Crisil Ratings, said higher rating upgrades reflect resilient domestic growth, supported by the government’s continued policy support towards infrastructure build, revival of rural consumption demand and leaner corporate balance sheets.

Primary drivers

“As many as 38 per cent of the upgrades were from the infrastructure and linked sectors. The primary drivers include acquisitions by strong sponsors and lower than expected debt, particularly in the renewables sector, reduction in project risks as road projects achieve critical milestones, progressive order execution in construction and a healthy order book in the capital goods sector,” he said.

On the other hand, the rating downgrades were spread across sectors. The downgrades seen in agricultural products and textiles sectors were due to volatile realisations and moderation in global demand, respectively. Furthermore, entity-specific liquidity issues, particularly sub-investment grade category companies, also contributed to the downgrades.

India Ratings & Research, meanwhile, upgraded 202 issuers’ rating in H1FY25 as against 62 downgrades.

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