In an exclusive conversation with Outlook Business, Chief Rating Officer of CareEdge Ratings talks about the credit quality assessment for H1FY24
CareEdge Ratings released its credit quality assessment for H1FY24 ( April-September) on Saturday. According to the ratings agency, the credit ratio for corporate India moderated to 1.67 in the period mentioned above. In the previous assessment period, the number stood at 2.72.
For the unversed, the number is the ratio of upgrades to downgrades done by the agency in the period. As per the data provided by the firm, ratings of 217 companies were upgraded in H1FY24 while 130 entities saw their ratings downgraded.
The agency informed that the aggregate ratio is still above the 10-year average of 1.54. The number has significantly come down from the high of 3.74 in H1FY23.
In an exclusive interaction with Outlook Business, Chief Rating Officer (CRO) of CareEdge Ratings Sachin Gupta talks about the outlook for the corporate sector, GDP and the trends in ratings data released by the agency.
State Of Firms
Explaining the trend of moderation in the ratings data, Gupta says that the one of the major reasons is the stress in small and mid sized firms. As per the assessment, credit ratio of below investment grade (BIG) firm reduced significantly from 2.22 in H2FY23 to 1.18 in the current assessment period.
"A lot of export oriented small and medium firms are suffering due to slowdown in major economies like US and China," Gupta says. India's exports have contracted for seven months in a row. In August 2023, merchandise exports stood at $34.48 billion as against $37.02 billion in the same period last month.
However, Gupta says that overall outlook remains stable at the moment with large firms performing well. "While there is stress in some segments, we are not seeing any rise in defaults at the moment which is a good sign for the economy," he adds.
Elaborating on strength areas seen in the data, Gupta points to the performance of infrastructure and BFSI firms. According to the ratings agency assessment, the credit ratio of infra firms remained strong at 2.21 in the period, slightly moderating from 3.10 in H2F23.
"Infra firms have benefitted from the push of government. As project completions pick up, the ratings of these firms move up. Their exposure to foreign markets is limited due to which their outlook appears to be more stable," Gupta says.
Talking about BFSI firms, whose ratings have surged from 1.91 in H2FY23 to 4.20 in H1FY24, Gupta attributes the improvement to the improving asset quality of banks. "In the last few years, the non performing assets ratio has come down significantly which has helped in improvement of ratings," he explains.
Another interesting trend in the data, according to Gupta, is the good performance of non banking financial companies (NBFCs). "We were closely watching if the asset quality will worsen for NBFCs. However, delinquency level has remained low which is a positive sign. They also grew at a fast pace which helped their profitability," he says.
Overall, Gupta says the outlook remains stable for corporate India going forward and the ratings of firms are expected to be on firm footing.
Macro Picture
In agency's official statement, Gupta remarked that there is an expectation of GDP growth moderating in the forthcoming quarters as base normalisation kicks in.
He says the broader scenario for Indian economy remains positive despite some moderation in growth number. "Growing at 6-6.5 per cent would be good thing for a large economy like India amid multiple global headwinds," he adds.
In the months ahead, he says that the inflation data and how the global economy evolves would be the things to watch out for. "We don't expect inflation to remain a major concern in the months ahead but how US and China perform would be a thing to look out for," the CRO opines.