India's corporates show strong credit quality
India's corporate bond market has completed the first half of the year without suffering a single bond default ? the first time in 10 years that India's corporates have achieved such a feat. The ratio of upgrades to downgrades, according to the Indian rating agency Crisil, totalled 25 to zero. Twenty of the upgrades related to ratings that were already in the high investment grade category (?AA' and above) with manufacturing and financial service sectors leading the way with 13 and 10 upgrades respectively. Eighty per cent of the upgrades were by a single notch.
Corporate profitability in India is being helped by falling real interest rates and the subsequent lower borrowing costs for corporates, while Crisil is also predicting declines in credit spreads as short-term disruptions due to inflationary concerns gradually ease off.
?Sustained volume growth coupled with efficiency gains will ensure healthy corporate profitability in the second half of 2005's financial year,? says the report. ?With limited capacity additions over the last several years, utilisation levels have improved. Given this, the trends in Crisil's rated portfolio indicate a strong pick-up in planned capital investments.?
Three companies received a triple-notch upgrade ? IDBI Bank, Tata Finance and the Steel Authority of India ? while one company, Dhampur Sugar Mills, recovered from the default category and was upgraded to ?BB'.