Rating companies see pick up in upgrades

Rating agencies are seeing higher upgrades than downgrades in the second half of FY21 as the economy unlocked and saw revival of economic activity. Major rating agencies Crisil as well as Icra are seeing higher credit ratio implying higher upgrades than downgrades.

For Crsil credit ratio- the of upgrades to downgrades rose to 1.33 in the second half of fiscal 20-21 with upgrades and downgrades at 294 and 221, respectively – from a decadal low of 0.54 in the previous half as demand recovery strengthened and GDP growth returned to positive in the third quarter, Crisil said.

“The emergency credit line guarantee scheme (ECLGS) provided much-needed liquidity support to jump-start business activity in the second half of the fiscal” said Subodh Rai, chief ratings officer, Crisil Ratings. “But the biggest driver for the increase in credit ratio were the unlock measures, which released pent-up demand across sectors, kick-started the economy and got cash flow from operations flowing for India Inc.”

For Icra the rating action trends since November 2020 suggest that incremental downgrade pressures have ebbed. At the same time, the proportion of rating upgrades has been on the rise over the past two quarters, it said. Since November 2020, the Credit Ratio of ICRA-assigned ratings consistently remained upwards of 1.0 time each month. Prior to that, the Credit Ratio had remained consistently below 0.6 in each month since May 2019.

“A broad resumption in economic activity, post the lifting of the lockdown, supported in ample measure by the fiscal and monetary policy interventions, has allowed businesses to recover, even as the recovery remains uneven thus far” said . K. Ravichandran, deputy chief rating officer, Icra. “While uncertainties relating to the sustenance of the recovery remain, stoked further by the second wave of Covid infections, our base case assumptions suggest that the overall credit quality of India Inc. is on the mend. The rising trend in upgrades seen since Q3 FY2021 and the smaller count of sectors carrying a Negative outlook reflect this view.”

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