Crisil, a subsidiary of S&P, expects the number of defaults among India Inc to be lower in the next 12 months as compared to the previous year.
However, the rating agency has cautioned that highly leveraged sectors like real estate and textiles will need to keep a check on their credit quality.
Ajay Dwivedi, director at Crisil Ratings, noted that currently there is an investment pick-up in sectors like infrastructure and infrastructure linked sectors like roads, power, capital goods, auto components and construction.
Crisil?s Default and Transition Study ? 2009 has said that the number of defaults by Crisil rated entities have increased to 44 in 2009 from six in the previous year.
All these 44 defaults, however, have been by entities rated ?BBB? or lower; more than two-thirds of these were by entities rated ?BB? or lower.
It noted that these 44 entities that have defaulted are out of the 2,800 companies rated by the firm, as against 800 rated in 2008.
?Most of these defaults have happened in sectors that are highly leveraged like textile and real estate. There have also been sugar companies, construction companies and the gems and jewelery sector that have witnessed defaults owing to the global turmoil,? he said.
Dwivedi explained that 2009 has witnessed a sharp economic downturn as a consequence of the global financial crisis.
As a result of these measures, the financial markets and the general economic environment returned to stability by the end of the year, he said.
These sharp changes in the business and financial environment resulted in many Crisil-rated companies retracing some of the sharp decline in credit quality that they had seen at the beginning of the year, he said. Meanwhile, Icra, the second largest rating agency, had said that the profile of upgrades of India Inc has witnessed a sharp improvement strengthening claims of a significant improvement in the business climate inside the country. A rating study of the transitions in Icra-assigned ratings, in terms of upgrade and downgrade, in the second half (H2) of FY 2009-10 reveals a substantial improvement in the number of upgrades compared to downgrades which have moderated over the period under review.
The key reasons prompting the rating upgrades during H2, 2009-10 include improvement in operating performance, and in the capital structure of the issuers concerned following the easing of market constraints on raising funds.
With the business environment improving since Q2, 2009-10, the outlook for most sectors servicing domestic demand has improved considerably.
