With the economy back on the high growth path, India Inc is rushing to credit-rating agencies to get themselves rated before embarking on raising funds through modes such as bank finance, commercial paper and debt, among others. The rating upgrades are back to the forefront after nearly four years of being dominated by downgrades.
Fitch Ratings has rated 241 Indian firms during the first half of the fiscal ended September, 2010, against 163 firms during the same period in 2009. Credit Analysis and Research Ltd (Care), another leading rating company, has changed the ratings of 145 firms during the first half of 2010-11 against 106 firms during the same period of the previous year. Responding to a query, D.R.Dogra, managing director (MD) and chief executive officer (CEO) of Care, said, "With the improvement in the domestic and global economies, India Inc has witnessed more upgrades than downgrades for the six months ended September, 2010." Upgrades by Care were up from 11 companies during the six months to September, 2009, to 99 firms in 2010. In line with the trend in upgrades, downgrades have come down from 95 to 46.
Raman Uberoi, senior director, Crisil Ratings, said, "The biggest change is that after a gap of four years upgrades exceed downgrades. In this fiscal up to September 16, as many as 205 companies have been upgraded and 99 downgraded.
The trend is expected to continue for the rest of the fiscal." The global financial meltdown, which started with the sub- prime crisis in the US in 2007, saw rating agencies being blamed for their laxity. Since then these agencies have spruced up their rating processes.
Higher disposable incomes, higher consumer spending and easy availability of finance are some of the key factors for driving sales and profitability. "The demand in the domestic markets has remained fairly robust with improvement on the external front aiding some of the export- oriented sectors, such as textiles and gems and jewellery," said Rakesh Valecha, senior director, Fitch Ratings.
Only some sectors like telecom and sugar have suffered due to falling revenues. "India Inc, including banks, has shown a greater level of maturity in managing its debt during the a decade ago," Dogra said.
Finance-debt or equity - is not a constraint now. " Private consumption, aided to an extent by export demand, will help corporates improve their credit rating.
The only concern is rising commodity prices, which may hit corporate profitability to an extent," Uberoi added.
But negative factors like inflation on the domestic front and external shocks led by outflow of foreign portfolio funds from India could skew the scenario.
"Even the downside risks in the developed economies are limited with concentrated efforts by the governments and central banks of those economies," said Dogra.
Inflationary pressures could impact cost structures and limit improvements in financial leverage.
"An external shock resulting in capital outflow could not only impact export- oriented sectors like textiles, gems and jewellery but also those sectors which are driven by availability of liquidity ( auto, real estate and consumer durables)," Valecha said.
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