In a reversal of a three-year trend, Crisil upgraded more companies than it downgraded in the second half of FY2010. There were 108 rating upgrades against 95 downgrades. The number of defaults, too, declined during the same period to 20 against 29 in the first half of FY 2010. This reversal saw Crisil?s modified credit ratio, or MCR (the ratio of upgrades plus reaffirmations to downgrades plus reaffirmations) increase for the entire 2009-10, snapping a four-year trend of decline that had begun in 2005-06. The MCR for 2009-10 increased to 0.93 times, from 0.86 times in 2008-09. With this, the credit cycle seems to have turned after the recent global economic slowdown. These trends were observed on a portfolio of almost 4,000 Crisil-rated entities. Of these, 75% are mid-sized entities, each having an annual turnover of less than Rs 500 crore.
?It is a significant indicator of what is happening in the larger economy. It might lead one to believe that everything is rosy. However, one has to be a little cautious,? said Ajay Dwivedi, director, Crisil Ratings, adding that certain risks to credit quality could arise because of inflation build-up, exchange rate volatility or some unforeseen global shocks. Crisil believes that the worst is over for the Indian economy and current trends indicate that upgrades will outnumber downgrades in 2010-11. However, the degree to which the credit cycle turns will depend on the sustainability of demand growth, and the impact of fresh capital expenditure on players? balance sheets.
The number of rating upgrades quadrupled in the second half of 2009-10 over that of the first half. Simultaneously, downgrades declined by over 25%.