Showing the economic slowdown’s deep effect on business, rating downgrades at 216 were about four times more than upgrades (64) in the first quarter (April-June), according to rating agency CARE.
The sectors most vulnerable to the slowdown have seen the most downgrades. These include construction, iron and steel, real estate and textiles, said D R Dogra, managing director and chief executive officer, CARE. The slowing in industrial activity is due to a combination of low consumer, investment and government demand. High interest rates to control inflation have also affected the pace of growth.
A senior Bank of Baroda executive said the downgrade trend reflects the strained financial profile of companies due to many factors like a slump in demand and rise in input costs. There is also a rise in outgo on account of interest costs, which forms a small part of overall costs, he said.
On the steel sector, CARE said the industry saw capacity growth rates outpacing the consumption growth rate in 2011 and regulatory aspects impacting the cost dynamics. The key enablers of growth - high growth rate in domestic demand and cost advantage in terms of iron ore prices - have been largely absent in recent times, it said.
The outlook for the rest of the financial year is not enthusing. There is pressure on liquidity and a slowing in demand. Things will change only when the scenario (sentiment) and demand improve, Dogra said.
