Better financial metrics, business growth, and adequate liquidity were the areas of improvement. India Inc’s credit profile shows steady sequential improvement, according to the reports by various rating agencies.
Corporate credit rating upgrades showed an improvement in the first half of 2022-23. Better financial metrics, business growth, and adequate liquidity were the areas of improvement. The expected deterioration in the business environment has not materialised so far. If the deterioration happens, it will temper the credit ratio, the proportion of upgrades to downgrades.
India Inc’s credit profile shows steady sequential improvement, according to the reports by various rating agencies. Indian companies have successfully overcome this in the last two years by deleveraging, managing supply chain disruptions and keeping a check on costs. With the progressive lifting up of pandemic restrictions, those covering purely domestic consumption have benefited from the robust recovery in demand.
Big companies have developed greater resilience towards widening credit spreads and rising input costs. Majority of them have adequate internal accruals to fund capital expenditure, hence it is easy for them to manage scenarios like increase in funding costs. They hold a small part of the debt in floating rates, which saves them against the interest rate trajectory.
Also, the refinancing risk they carry is fairly limited. Expectedly, adverse foreign exchange movements via raw material imports and unhedged debt exposure will be less broadly felt than impact of rupee going down.
However, rising interest rates and flight of capital may probably affect investment plans of smaller players. Specifically, export industries and small enterprises are particularly vulnerable to a global slowdown and liquidity issues.
Additionally, a broad- based private capital expenditure cycle is still not favourable. Eventually, borrowing costs leading to constrain consumption demand will end up in moderation of the corporate credit profile. But still deleveraging of balance sheets may continue.