Executive summary
First-half credit ratio at 1.91 riding on domestic demand, government capex
The CRISIL Ratings credit ratio, or the proportion of rating upgrades to downgrades, moderated in the first half of this fiscal to 1.91 from 2.19 in the second half of last fiscal.
There were 443 upgrades and 232 downgrades. A ratio above 1 means upgrades outnumbering downgrades.
The first-half upgrade rate dipped marginally to 12.70% compared with 13.46% in the preceding half. However, it continues to be above the decadal average of ~10%. The upgrades were driven by an expected expansion in cash flows this fiscal for sectors linked to domestic demand and for those benefiting from high government spending. These sectors, such as infrastructure, services, and consumables, kept the overall upgrade rate elevated.
Infrastructure and linked sectors1 accounted for around 29% of the upgrades in the first half. To be sure, infrastructure has benefited not just from high budgetary allocation, but also from better risk sharing among stakeholders and acceptance of investment vehicles such as InvITs, or infrastructure investment trusts.
The overall downgrade rate, meanwhile, rose to 6.65% (6.14% in the previous half), inching closer to the average of ~7% for the past decade. The downgrade rate was seen inching up for export-oriented sectors as well, even as strong balance sheets somewhat cushioned the impact of heightened risks overseas.
The proprietary CRISIL Ratings Corporate Credit Health Framework provides our credit quality outlook on 43 sectors (accounting for ~75% of the rated debt2) for the fiscal. It analyses operating cash flow strength (change in absolute estimated Ebitda3 on-fiscal) and balance sheet strength expected by this fiscal-end.
1 Refers to key infrastructure and linked sectors, such as renewables, road assets, construction & engineering, capital goods and real estate
2 Excluding the financial sector
