Indian companies? credit quality will continue to remain under pressure and downgrades will be higher than upgrades in 2013-14, says rating agency Crisil.
In 2012-13, the rating downgrades shot up sharply and were far higher than the upgrades, Crisil said. It downgraded 1,073 companies and upgraded 670 companies in the last financial year. Nearly 404 companies were given default rating in 2012-13 as against 188 in 2011-12. The default rate was over a 10-year high at 4.7%.
Textile, steel and capital goods sectors accounted for around one-third of defaults. The defaults were primarily on account of weak liquidity due to stretched working capital cycles, Crisil said. In 2013-14 too, downgrades could exceed upgrades but the rise could be limited, Crisil said. ?We believe credit quality cycle has turned,? said Pawan Agarwal, senior director at Crisil Ratings.
?Though credit quality saw a significant decline in 2012-13 from the previous year, the pace of decline in credit quality moderated in last six months of 2012-13,? it said in a release. Further, improvement was also visible as the default rate was steady, the rating agency said.
Ease in input costs owing to expected fall in commodity prices, a falling interest rate cycle and signs of revival in investment may all contribute to improving the credit quality of Indian companies. However, companies that had managed the downturn in the economy well through prudent liquidity management will have a better rating, the agency said.