Mumbai: Major rating firms- Crisil, Icra and Care Ratings see the number of ratings upgrades outpacing the number of down grades. But they warn of stress in certain sectors as they face a volatile rupee, rising interest rates and potential risk of trade wars.
CRISILs credit ratio or number of upgrades to downgrades stood at 1.68 times in the first half of fiscal 2019, 1.45 times in the same period, a year ago. There were 685 upgrades to 408 downgrades in the first half of fiscal 2019
“The uptick can be seen in sectors such as steel, construction and industrial machinery that, besides buoyant commodity prices, benefited from the governments infrastructure spending even as private investments lag” said Somasekhar Vemuri, senior director, Crisil.
As for domestic consumption-linked sectors, the demand growth drivers remain strong, but rising interest rates could act as a mild dampener, Crisil said adding that all is hunky-dory because corporates face a volatile rupee, rising interest rates and a potential risk of tariff disputes escalating into full-blown trade wars.
Care Ratings Modified Credit Ratio (MCR) which is defined as the ratio of (upgrades and reaffirmations) to (downgrades and reaffirmations) for the first half of FY19 was stable at 1.01 when compared with first half of FY18. It however was lower than the MCR during the first half of FY15-17 (1.04 to 1.17).
Declining operating income and profitability, adverse capital structure, deterioration in debt servicing parameters (delays/default in debt servicing) and worsening liquidity positions were the primary factors that led to rating downgrades in the first half of FY19, according to a release by Care Ratings.
Icra upgraded ratings of 290 issuers in the first half of FY19 compared to 191 downgrades. “ICRA upgraded total debt of Rs. 3.3 trillion in H1 FY2019, significantly higher than the total debt of Rs. 1.8 trillion upgraded in the entire full year FY2018” said Jitin Makkar, Head, Credit Policy, Icra.