India Inc credit outlook turns positive, upgrades rise: CRISIL Ratings

Demand recovery to sustain; vaccinations to mitigate the severity of the third wave

Rating agency CRISIL on Wednesday upgraded the credit quality outlook of India Inc for FY22 from “cautiously optimistic” to “positive”, predicated on a sustained recovery in demand. This comes after the blip caused by the second wave of Coronavirus (Covid-19) pandemic in Q1FY22.

The increase in coverage of vaccinations should also mitigate the impact of a third wave if it comes, CRISIL said in a statement.

A CRISIL Ratings study of 43 sectors (accounting for 75 per cent of the Rs 36 trillion of outstanding rated debt, excluding the financial sector) shows that the current recovery is broad-based.

As many as 28 sectors (85 per cent of outstanding corporate debt under study) are on course to see a 100 per cent rebound in demand to pre-pandemic levels by the end of this fiscal, while 6 will see upwards of 85 per cent.

Subodh Rai, chief ratings officer, CRISIL Ratings, said outlook revision factors in strong economic growth, both domestic and global, and containment measures that are localised and less stringent compared with the first wave. This should keep domestic demand buoyant even if a third wave materialises. “We believe India Inc is on higher and stronger footing,” he added.

The credit ratio (upgrades to downgrades) in the first four months of this fiscal improved to more than 2.5 times. It had

touched a decadal low of 0.54 time amid the first wave in the first half of fiscal 2021, before recovering to 1.33 times in the second half, buoyed by a rebound in demand, CRISIL said in a statement.

Among sectors with the most rating upgrades, construction and engineering, and renewable energy benefited from the government’s thrust on infrastructure spending. The steel and other metals gained from higher price realisations and profitability.

Pharmaceuticals and specialty chemicals continued to see buoyancy backed by both domestic and export growth. But the contact-intensive sectors such as hospitality and education services continue to bear the brunt of the Covid-19 pandemic and have had more downgrades than upgrades.

To be sure, targeted relief measures by the Reserve Bank of India (RBI) and the government amid the second wave have cushioned credit profiles in some sectors, the agency added.