Over the last few quarters, there have been challenges, be it the geopolitical tensions, concerns over US President Donald Trump's plans for reciprocal tariffs, domestic economic slowdown and tight liquidity. India's corporates largely seem to have weathered these challenges well thus far.
Data released by several ratings agencies showed credit rating upgrades continue to significantly exceed downgrades, indicating continued strength in credit quality of Indian companies, aided by strong balance sheets, benign commodity prices, pickup in rural consumption and continued government spending on infrastructure.
India Ratings upgraded ratings of 330 issuers in the 2024-25 financial year, which is 19 per cent of the reviewed portfolio, while ratings of 94 issuers were downgraded, representing about 5 per cent of the reviewed portfolio. Similarly, ICRA upgraded ratings of 301 entities, while downgrading 150. Elsewhere, CareEdge Ratings upgraded 386 companies in the second half of 2024-25, while downgrading 164 companies.
A key point ratings agencies noted is that the corporate credit profile continues to benefit from robust balance sheets. While corporates have significantly deleveraged, equity fund raising has also been sizeable, while being cautious on capital investments, they pointed.
"Some of the important financial metrics such as the median net leverage and interest coverage, which had improved significantly since FY2022, have sustained through all these years. We expect these metrics to be sustained over the medium term. The operational cashflows have benefited from robust domestic consumption with the rural demand picking up in FY2025, benign commodity prices and government-led infrastructure spending," said Arvind Rao, senior director, and head of credit policy group at India Ratings.
Over the past decade, the aggregate operating profits of around 6,000 listed and unlisted entities analysed by ICRA have grown at a compounded annual growth rate of 12 per cent, while their total debt has increased by only 4 per cent, noted K. Ravichandran, executive vice-president and chief ratings officer at ICRA. This enhanced the ability of corporate India to bear the cyclical challenges over the last few years.
In the Union Budget in February, Finance Minister Nirmala SItharaman announced several relief measures on the income tax front, including raising the basic exemption limit, hiking the rebate limit as well as widening the tax slabs.
These measures, coupled with interest rate cuts from RBI and easing inflation is expected to drive urban consumption, in turn providing corporate India a further boost.
Crisil expects median revenue growth for corporates in its rated portfolio to likely improve to 8 per cent in 2025-26 from 6.5 per cent in in the year-ended March 2025, supported by consumption-driven sectors and it would be largely volume-led, while the median EBITDA (earnings before interest, taxes, depreciation and amortization) margin is seen sustaining at current levels on benign energy and commodity prices.
But, the looming reciprocal tariffs by US President Donald Trump likely to be announced later this week does pose a threat.
"We remain watchful of the uncertainties stemming from US trade policies and slowdown in the global economy impacting exports. The Indian government’s tariff diplomacy and policies to safeguard the domestic market from dumping risk will be crucial," said Somasekhar Vemuri, senior director at CRISIL Ratings.
Another uncertainty and key to watch would be the asset quality of lenders, especially those who have a large unsecured loan book, as well as delinquencies in the microfinance segment, say analysts.
"Indeed, the extended bout of a benign credit cycle for financial sector entities has shown signs of ending with evidence of an increase in fresh slippage and credit costs associated with unsecured loans," stated ICRA. However, ICRA views this as a normalisation of the asset quality cycle, with the overall credit profile of financial sector entities expected to remain steady, supported in part by Reserve Bank of India's measures to ease the operating conditions for lenders.
With the expected revival in private capex spends, leverage ratios may start showing signs of marginal deterioration, thereby restricting the momentum of upgrades, warned India Ratings, which still expects upgrades to continue exceeding downgrades in 2025-26, but at a moderate pace.
