CRISIL upgrades credit outlook of India Inc to 'positive' for FY22

Ratings agency CRISIL has upgraded the rating outlook of India Inc to 'positive' from 'cautiously optimistic' for FY22 on a sustained recovery in demand after the slowdown in the first quarter of the year due to the second wave of COVID-19 pandemic.
 
The credit ratio of upgrades to downgrades in the first four months of this fiscal improved to more than 2.5 times. "It had touched a decadal low of 0.54 time amid the first wave in the first half of fiscal 2021, before recovering to 1.33 times in the second half, buoyed by a rebound in demand," CRISIL said in a release.
 
A CRISIL study of 43 sectors, accounting for 75 per cent of the Rs 36 lakh crore outstanding rated debt, excluding the financial sector, shows that the current recovery is broad-based, it said.
 
"As many as 28 sectors (85 per cent of outstanding corporate debt under study) are on course to see a 100 per cent rebound in demand to pre-pandemic levels by the end of this fiscal, while 6 will see upwards of 85 per cent," the release said.
 
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Among sectors with most rating upgrades, construction and engineering, and renewable energy benefited from the government's thrust on infrastructure spending, while steel and other metals gained from higher price realisations and profitability. Meanwhile, pharmaceuticals and specialty chemicals continued to see buoyancy backed by both, domestic and export growth.
 
"Our outlook revision factors in strong economic growth, both domestic and global, and containment measures that are localised and less stringent compared with the first wave, which should keep domestic demand buoyant even if a third wave materialises. We believe India Inc is on higher and stronger footing," CRISIL Ratings Chief Ratings Officer Subodh Rai said.
 
The increase in coverage of vaccinations should also mitigate the impact of a third wave if it comes, the ratings agency said.
 
However, contact-intensive sectors such as hospitality and education services continue to bear the brunt of the pandemic and have had more downgrades than upgrades, it said, adding that the targeted relief measures of the Reserve Bank of India (RBI) and the government amid the second wave have cushioned credit profiles in some sectors.

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The support from the government and RBI has helped the banks and non-banks curb a rise in non-performing assets, and the financial sector is better placed than a year ago.
 
While credit profiles in financial sector have been supported by higher capitalisation levels, better provisioning cover, and increased access to liquidity, unsecured retail and micro, small and medium enterprise loan segments are likely to witness higher stress over the near term, CRISIL said.
 
"Besides regulatory relief measures, a secular deleveraging trend has provided India Inc the balance sheet strength to cushion impact on their credit profiles. The median gearing for the CRISIL Ratings portfolio (excluding the financial sector) declined to about 0.8 time at the end of fiscal 2020 and then to an estimated about 0.7 time in fiscal 2021, from about 1.1 times in fiscal 2016," CRISIL Ratings Senior Director Somasekhar Vemuri said.
 
Going ahead, CRISIL said a fat tail in the second wave or an intense third wave would be the key monitorables.
 
"Other risks to the positive credit outlook include regional and temporal distribution of rainfall and its implications for sustained demand recovery. Small businesses, in particular, will be more vulnerable to any slack in demand," it said.

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