Crisil sees slower growth in rating upgrades

India Inc's credit quality is peaking, and the ratio of number of rating upgrades outnumbering downgrades may not improve further in the coming quarters, said leading rating agency Crisil .

The rising trend in commodity prices and interest rates, coupled with the intensifying competition are expected to weigh heavily on the profitability of companies. "The profitability of players in the cement, chemicals, construction, automobiles and textile spinning industries may be affected by high input prices," said Pawan Agrawal, director-ratings of Crisil.

"Among external factors that can have a large impact on corporate credit quality are oil price shocks due to unrest in the Middle East and North America, and interruption in trade and investments due to unexpected developments in stimuli-supported developed economies," Agrawal added.

The United States and some European countries have been guarding their economies against recessionary trends with the assistance of huge stimulus packages. There is an argument that even the present moderate growth rates might not be sustainable once the stimulus is unwound.

Crisil upgraded 605 ratings and downgraded 269 ratings in 2010-11, on the base of around 6,200 ratings last fiscal end. Rating upgrades outnumbered downgrades taking Crisil's modified credit ratio (indicator of relative frequency of rating upgrades to downgrades) to improve to 1.10 times in 2010-11 from 0.93 times in 2009-10. Upgrades outnumbered downgrades in 2010-11, driven largely by healthy demand conditions and a favourable funding environment.

While the upgrades were spread across rating categories, about 70 per cent of the downgrades was from the low rating categories - of 'BB' and lower (top rating being 'AAA', also called Triple 'A'), which have historically been more vulnerable to downgrades.

The MCR has maintained its upgraded trajectory for the second year, after plummeting to a decadal low of 0.86 times in 2008-09. "Any further improvement in MCR may, however, be limited. This will be on account of increased pressure on profitability, given the rising trend in commodity prices and interest rates and intensifying competition," Crisil said.

Courtesy: Mail Today