Negative rating actions on firms rises to 32% in Q1FY21 from 23%: Icra

Negative rating actions on companies increased to 32 per cent in the first half of the current financial year from 23 per cent in the year-ago period, indicating serious disruption to businesses due to the coronavirus pandemic, says a report.

Of the 32 per cent negative rating actions, as much as 17 per cent were downgrades and upgrades were a paltry 5 per cent in the first six months of 2020-21, Icra Ratings said in a note on Thursday.

The top five sectors that saw maximum negative rating actions were textiles, real estate, hospitality, auto ancillaries and construction.

In the first half of this fiscal, Icra took negative rating actions on 582 companies, which account for 32 per cent of the total entities that it rates. It was only 23 per cent in the same period a year ago.

The data relates to the performance of financial, non-financial and public finance ratings and do not cover the performance of structured finance ratings.

"Around half of the negative rating actions were downgrades. As downgrades rose, the annualised downgrade rate touched a high of 17 per cent in H1, up from 10 per cent in the year-ago period. As against this, there were only 94 upgrades in H1, reflecting an annualised upgrade rate of a mere 5 per cent, as against 9 per cent in the previous year," Icra said.

Textiles, real estate, hospitality, auto ancillaries and construction saw the maximum a negative rating actions during the reporting period and all these sectors, barring hospitality, were already facing a demand slowdown prior to the onset of the pandemic.

Only 11 defaults were reported by the companies rated by the agency compared with 83 defaults in the whole of FY20. However, Icra said this was because 27 per cent of these companies chose to go for moratorium.

While credit quality pressures have remained elevated, the situation could have been worse without the interventions seen on the fiscal, monetary and regulatory fronts. The mitigating effects of these measures manifested favourably in the broader financial markets as well as some specific sectors, the report said.