India Firms’ Credit Health Recovers at Fastest Pace in a Decade

(Bloomberg) -- The credit quality of Indian companies improved at the fastest pace in a decade, a ratings agency said, reflecting a strong recovery in the economy and fiscal and monetary policy support. 

India Ratings & Research said the share of rating downgrades to upgrades dropped to 0.3 in the 12 months that ended March 31, the lowest in 10 years. The unit of Fitch Ratings raised its grades for 276 issuers, representing 23% of its portfolio, and cut the scores of only 86. 

 “Positive rating actions was seen across almost all sectors in FY22, indicating a broader economic recovery,” Suparna Banerji, associate director at India Ratings, said in a note. “This is in contrast to FY21 where upgrades were limited to few sectors.”

Despite the upbeat assessment, the increase in commodity prices caused by Russia's invasion of Ukraine risks dampening momentum. 

Indian firms could see a contraction in margins and the pace of ratings upgrades is expected to slow. 

“Hardening interest rates and unwinding of various pandemic-related funding measures could create liquidity challenges, especially for the mid-corporates,” Ind-Ra said. “A likely slowdown in export demand and headwinds on account of increasing household leverage and declining incomes will impact consumption.”  

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