Credit quality of India Inc continuously improving

Mumbai, Oct 03 In H1 FY2024, the credit quality of India Inc. continued to strengthen, building upon the strong performance observed in the preceding two fiscal years, led by domestic consumption and investment-focused sectors. Both the investment grade as well as the non-investment grade categories showed a net improvement in their credit profiles, even as the pace of improvement moderated in comparison with the previous two fiscals.

In the past six months, ICRA changed its business outlook to ‘Negative’ from ‘Stable’ for three sectors. The outlook on the telecom towers sector was changed to ‘Negative’ following the elongation of the gross receivable cycle of the industry participants, beyond ICRA’s median threshold of 80 days for maintaining a ‘Stable’ outlook. Within the chemicals sector, the basic chemicals and the petrochemicals segments have been facing global demand pressures, an oversupply situation, and challenges arising from the dumping of the produce in India by other manufacturing nations (especially China and the USA). This prompted ICRA to change the outlook on the above two segments to ‘Negative’, even as the outlook on the specialty chemicals segment remains unchanged as ‘Stable’. Also, the outlook on the cut and polished diamonds sector appears glum with the sector expected to record a 22% decline in exports (in USD terms) in FY2024, over the previous year, marred by weakness in consumption demand (more so in the less than 3 carat segment), substitution of part-consumption in favour of lab-grown diamonds, and the narrowing of the spread between polished diamond prices and rough diamond prices because of sanctions on Russia, a key global supplier of rough diamonds.

Commenting on the overall developments, K Ravichandran, Chief Rating Officer, ICRA, said: “In relation to the global economic conditions, India is currently an island of relative calm. Continued resilience in demand, early signs of an uptick in private capex, besides a supportive policy environment augur well for India’s economic activity. That said, the lagged effects of the domestic monetary tightening on borrowing costs, the spillover effects of the narrowing spread between the US Treasury and the G-Sec yields, besides the prevailing weakness in external demand are some of the foreseeable risks to the credit quality of India Inc. What is not foreseeable, however, is how the ongoing geopolitical risks might play out, creating pressures on consumption and investment sentiments, supply chains, and capital flows, given the context that we currently live in a not-so-friendly moment in history.”