India Inc credit quality robust amid profit growth, low capital expenditure

Credit quality outlook positive amid global uncertainties

The credit profile of Indian companies remained robust in the second half of the financial year ending March 2025 (H2FY25) backed by healthy profit growth and slower capital expenditure (capex). The rating upgrades remained much higher than rating downgrades for entities tracked by rating firms.

 

While the credit quality outlook for 2025-26 (FY26) is positive, the journey ahead is far from smooth amid likely disruption in global trade. The imposition of US tariffs could disrupt the momentum for export-driven sectors, particularly those reliant on discretionary spending, rating agencies observed.

 

CRISIL Ratings, in a statement, said that the credit ratio, that is the ratio of the number of upgrades to the number of downgrades, stood at 2.64 times in H2FY25, a tad lower than 2.75 times in the first half (H1FY25). In all, there were 423 upgrades and 160 downgrades during the period.

 

Rating agency ICRA upgraded the ratings of 301 entities and downgraded 150 in H2FY25. Although the credit ratio of ICRA-assigned ratings moderated to 2x in FY25 from the peak of 3x in FY22, it remained healthy.

 

Dwelling on the trajectory for rating action in 2025-26 (FY26), India Ratings said that with the expected revival in private capex spends, leverage ratios may start showing signs of marginal deterioration, thereby restricting the momentum of upgrades. Overall, upgrades are expected to exceed downgrades in FY26, albeit at a moderate pace.

 

“India Inc has experienced an extended period of credit profile improvement, much of it due to strengthening balance sheets,” said K Ravichandran, chief rating officer, ICRA.

 

There has been an improvement in the ability of corporate India to bear cyclical challenges in recent times posed by commodity price inflation, rising interest rates, and subdued demand.

 

Arvind Rao, senior director, India Ratings, said, “The corporate credit profile is continuing to benefit from the robust balance sheets. The operational cash flows have benefitted from robust domestic consumption with rural demand picking up in FY25, benign commodity prices, and government-led infrastructure spending.”

 

Credit quality outlook robust

 

The healthy balance sheets, consumption, and the easing interest rate cycle are expected to support growth and help companies maintain robust credit profiles while they face risks of disruptions due to uncertainty and tariff wars.

 

“Corporate India would benefit from the urban consumption spur driven by budgetary tax cuts, easing inflation, and expected reduction in interest rates,” said Subodh Rai, managing director, CRISIL. 

 

“Further, steadfast spending on infrastructure will have a positive multiplier effect and support linked sectors. To boot, India Inc’s low capex density and balance sheet strength offer ample cushion against global shocks,” Rai added.

 

Sachin Gupta, chief rating officer, CareEdge Ratings, said that the imposition of US tariffs could spark intense price competition among affected economies and that this uncertainty could keep private sector capex on the sidelines until clearer signals emerge.

 

The picture, however, is not all bleak. Trade agreements and rupee depreciation could offer much-needed relief to exporters. At the same time, corporate India’s strong, deleveraged balance sheets act as a sturdy shield against external volatility, Gupta added.  

Drivers of strong credit quality

 

*  Deleveraging in the corporate sector 

 

*  Rising profitability and controlled credit costs in financial sector entities

 

*  Improving risk profile of newly operational assets

 

*  Sustained demand buoyancy in select sectors, such as hospitality