Rating companies report sharpest rise in upgrades, improvement in creditworthiness

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Rating companies reported sharpest rise in June quarter upgrades bucking the trend of downgrades since the beginning of the pandemic early last year as local companies regain business normalcy, demonstrating better creditworthiness, amid a slew of relief measures.

Credit Ratio, a gauge for financial health of companies, shot up to 2.08 in June quarter from 1.7 January-March quarter with credit agencies upgrading 771 companies over 370 downgrades, according to Prime Acuité Credit Ratings Migration Database that complied data from seven local credit rating companies including Acuite, Brickwork, CARE,

, , India Ratings and Infomerics.

The credit ratio, or upgrades over downgrades, has seen a steady rise since the first quarter of last year. The gauge was at 0.36 in April-June last year with 241 upgrades versus 662 downgrades. It was at 1.77 in January-March this year. A ratio below 1 indicates deteriorating financial health of the corporate sector.

“The first quarter upgrades are a reflection of factors including government spending, liquidity support and curtailed overhead costs,” said K Ravichandran, deputy chief rating officer of ICRA Ratings. “Loan restructuring plans have worked well for companies, which could avoid possible downgrades.”

“Migration has started happening from the unorganised sector to organised sector,” he said.

Labour movement to urban projects has resumed after migrant labourers rushed back to their homes in the hinterland amid strict lockdowns last year. Lockdowns in the second wave of the pandemic have been more relaxed than the first wave of infections.

Power, real estate, pharmaceuticals and chemicals are at the forefront of upgrades.

“With vaccination drive gathering momentum, the trend towards normalisation is likely to also catch on in contact intensive sectors,” said Suman Chowdhury, chief analytical officer, Acuite Ratings. “The rate of upgrades rose at the sharpest pace since outbreak of the pandemic last year.”

“Corporates in several sectors have performed better than expectations in FY21 and those in others may regain business normalcy in FY22,” he said.

The credit ratio, or upgrades over downgrades, has seen a steady rise since the first quarter of last year. The gauge was at 0.36 in April-June last year with 241 upgrades versus 662 downgrades. It was at 1.77 in January-March this year. A ratio below 1 indicates deteriorating financial health of the corporate sector.

“The second wave impact on the economy is not all encompassing with supply chain activity remaining unaffected,” said Sachin Gupta, chief rating officer at CARE Ratings. “The commodity cycle also helped lift business fortunes for many sector companies like steel or metal.”

“Besides, the business optimism, backed by rising vaccination, added to it resulting in more upgrades,” he said.

Steel companies have revived their fortunes with record high steel prices giving a new lease of life to the industry.

The banking system has a surplus liquidity of Rs 5.45 lakh crore. Both the government and the RBI came out with a plethora of plans to fill funding needs.

The finance ministry launched the Emergency Credit Line Guarantee Scheme (ECLGS) last year in May to rescue the pandemic hit economy. It was aimed at providing unsecured loans to micro, small and medium enterprises (MSMEs). The facility has now been extended until September 30 this year.

This in the sanctioning of about 61 percent of the Rs 4.5 lakh crore upper limit of the plan.

The government too started spending from September last year to create more business opportunities for companies and central government policies like Production Linked Investment (PLI) paved the way for new investments.

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