'Cos ratings on upswing, sharp rise in upgrades'

After two consecutive financial years of sub-5 per cent GDP growth, India's economy is showing early signs of recovery as reflected in a sharp rise in corporate rating upgrades in the current fiscal, rating agencies Crisil and Care said today.
The two domestic agencies said their respective ratios of rating movements are pointing towards early signs of recovery in Asia's third-largest economy which expanded at a healthy pace of 5.7 per cent in the April-June period.
"Corporate India's credit quality is showing early signs of recovery...Upgrades exceeded downgrades in H1 - 741 upgrades compared to 451 downgrades," Crisil said in a report.

Its competitor Care Ratings said there has been a "sharp increase" in the number of upgrades in the September quarter, where upgrades have doubled over the year ago period.
Crisil said the improvement in credit quality will be gradual and a significant recovery will be possible only on a sustained increase in investment demand.
Stating that improvement in business-related factors was the key driver for 60 per cent of the upgrades, Crisil said export-linked sectors and non-discretionary consumer segments like traders, packaged food, pharmaceuticals, textiles and farm products are getting enhanced ratings.

Players operating in the construction, engineering, capital goods and automobile ancillary sectors had higher downgrades than their counterparts in other sectors, Crisil said.

"Credit quality buoyancy in the overall economy is still some time away, and for that to happen, investment demand, which depends on the extent to which the Central government pushes big ticket policy reforms, needs to increase substantially," Crisil Senior Director Pawan Agrawal said.
The key aspects to monitor going forward will be impact of the monsoons, progress by indebted corporates in reducing their external debt through asset sales or equity infusion, demand outlook in the economy, and the extent of policy reforms by the Government, Crisil said.
It can be noted that banks have been grappling with bad assets, which piled up during the period of low growth, and they are keenly looking forward to a revival in economic growth which will take care of their concerns.