Despite the challenges, credit quality of India Inc improves in FY24: ICRA

Despite the challenges in FY24, the credit quality of Indian companies improved, driven by increased domestic consumption across several sectors, government expenditure on public infrastructure, and robust balance sheets, which supported the credit profiles of entities, credit rating agency ICRA noted.

According to the agency, the Credit Ratio in FY24 stood at 2.1 times, with the rating agency upgrading two entities for every entity downgraded, continuing the trend from the last two financial years. Meanwhile, the net upward pressure on the ratings is considered to be on the path of normalisation.

K Ravichandran, chief rating officer, ICRA, said, “The rating action trends in FY24 marked the normalisation of the rating change rate, with the proportion of rating reaffirmations at 80 per cent, aligning with the past ten-year average. The reaffirmation rate had been between 75 per cent and 78 per cent in the preceding two financial years.”

In FY24, sectors such as Aviation, Hospitality, Auto & Auto Components, and Banks saw rating upgrades primarily due to industry tailwinds. In the case of Power, Infrastructure and Realty, rating upgrades were bolstered by company-specific factors such as expansion in market share, order book, improvement in cost structure, reduction in project risk, or fresh equity infusion strengthening the balance sheet.

In FY25, the promising macroeconomic conditions and stable commodity prices are expected to support the credit profiles for India Inc, with climate and geopolitical challenges being key areas of concern.

“The key downside factors that could impact this positive prognosis would be the outcome of this year's monsoons and the evolving complex geopolitical landscape,” Ravichandran added.

For FY25, ICRA maintains a Positive outlook on the Hospitality sector. Meanwhile, the rating agency holds a negative outlook on Chemicals, Cut & Polished Diamonds, Telecom Towers, and Bulk Tea.