New Delhi: Crisil Ratings said the credit quality outlook for Indian corporates remains positive for the April-September period of the 2024-25 fiscal year with upgrades continuing to outpace downgrades. In the last fiscal year, Crisil gave 409 rating upgrades and 228 downgrades. Some export-linked sectors, such as textile and seafood, saw a higher downgrade rate due to subdued global demand or high-cost inventory that impacted profitability.

"India Inc.'s credit quality outlook is positive for the first half of fiscal 2025 with upgrades expected to outnumber downgrades. The multiplier effect of government capex will continue to drive infrastructure and linked sectors. Healthy balance sheets will continue to support the credit quality outlook, with capex funding seen prudent," Crisil Rating said.

It said the outstanding bank credit is expected to cross INR 200 lakh crore by March 2025, from INR 172 lakh crore a year ago, even though there would be moderation in the rate of credit growth.

The Indian economy with a GDP growth of 6.8% is expected to remain the fastest-growing large economy in the current fiscal. The growth will, however, moderate from 7.6% expected in 2023-24 as high interest rates and the lower fiscal impulse to growth will temper demand, according to Crisil.

Crisil Ratings Managing Director Gurpreet Chhatwal said the three key pillars of India Inc's credit quality -- deleveraged balance sheets, sustained domestic demand and government-led capex -- kept the upgrade rate elevated in the second half of FY24.

"With balance sheets in most sectors at their healthiest, capacity utilisation around peak levels and expected interest rate cuts, a broad-based pick-up in private capex is finally in sight," Chhatwal said, adding that sectors with export linkages could have some uncertainties around them.

Stating that bank credit outstanding could cross INR 200 lakh crore by March 2025, credit growth will remain healthy, albeit a tad lower at 14% this fiscal year. Credit growth was 16% in the last fiscal year that ended on March 31.

Overall gross non-performing assets (NPAs) will continue to trend down and touch fresh decadal lows, it said.

Crisil Ratings Senior Director and Chief Ratings Officer Krishnan Sitaraman said there is a likelihood of interest rate cuts globally in 2024. "We expect the RBI to cut interest rates in the second half of the current fiscal," Sitaraman said, adding that credit quality is likely to remain positive.

The RBI is scheduled to announce its first monetary policy review for the current fiscal on April 5.

For FY25, as many as 21 of 26 corporate sectors have strong to favourable credit quality outlook, marked by robust balance sheets and healthy operating cash flows -- expected to be as much, or higher, than in fiscal 2024.

These include auto-component manufacturers and companies in the hospitality and education sectors where credit quality is supported by healthy domestic demand.

It also includes sectors benefiting from the government's infrastructure spending, such as construction companies, and steel, cement and capital goods manufacturers.

Four corporate sectors -- speciality chemicals, agrochemicals, textile cotton spinning and diamond polishers -- are facing headwinds given their fortunes are aligned with global macroeconomic conditions, which are subdued at present.

Somasekhar Vemuri, Senior Director, CRISIL Ratings says, "The outlook on India Inc’s credit quality is positive for the first half of fiscal 2025, with upgrades expected to outnumber the downgrades. This is largely led by tailwinds from the domestic economy and despite export-linked sectors only gradually ticking up in the wake of uneven global recovery. Domestically, food inflation still weighs on rural demand even as the overall inflationary pressure eases. To maintain its favourable position, India Inc. will need to be watchful of supply chain disruptions from the escalation in geopolitical tensions."

Article Source - PTI