Ratings agency Icra today said the pace of rating downgrades moderated in the second half of 2012.
The rating downgrades stood at 9.5 per cent in H2 of 2012, which improved from 10.3 per cent in the same period a year ago, Icra said in a statement here.
However, downgrades are still at an elevated level, the agency said.
More than half of the companies downgraded began the reporting period (July 2012) with a non-investment grade rating, Icra said in a report.
"The difficulties in the operating environment also impacted the credit profiles of borrowers in the lower investment grades."
A slew of factors, both domestic as well as international, have been blamed for the gloomy economic scenario and India's GDP growth is expected to fall to 5.5 per cent levels a decadal low, this fiscal.
The sectors which witnessed the maximum downgrades included textiles, power and power-related infrastructure firms, engineering companies, hotels and auto ancillaries, it said, adding the upgrades were not sector-specific but driven by company-specific factors.
"An improving economic outlook and moderation in inflation could alleviate the pressures on the credit profiles of companies," it said, adding going forward, the trend of a slowdown in rating downgrades is likely to continue.
A moderation in inflation which will lead the RBI to soften its rates and hence bring down borrowing costs for companies, the rating outfit said.
However, the agency maintained a negative credit outlook on sectors like metals and mining, construction, power and capital goods.