Icra, an associate of Moody?s Investor Service, has seen a vast improvement in the financial conditions of corporates and banks. PK Choudhury, vice-chairman & group CEO, Icra speaks to FE?s Kumud Das about the new trends where there have been more upgrades and less down grades among India Inc.

How do you see the corporate performance ?

Most of the companies who suffered in the recession have recovered. India Inc has a very high resilience. The second quarter results on an average are better than the first quarter. However, some export companies seems to have been affected by rupee appreciation.

Basically, there are three factors, which can impact the performance of a company: prices of raw material , export dependence and monsoon.

Do you see more rating upgrades ?

Upgrades will pick up. The total number of rating upgrades as a percentage reported a consistent increase from 2.42% in first half (H1) of 2009-10, to 5.14% in second half (H2) of 2009-10 and further to 6.54% in the first six months of 2010-11. The number of upgrades have been increasing consistently from 25 in H1, 2009-10 to 68 in H2, 2009-10 and further to 131 in H1, 2010-11, reflecting the improvement in the operating environment.

At the same time, the total number of rating downgrades, which was at 7.25% in H1, 2009-10 reduced marginally to 7.05% in H2, 2009-10, declined further to 3.73% in H1, 2010-11. The number of downgrades, which had increased to 79 in H1, 2009-10 and peaked at 101 in H2, 2009-10, has declined to 80 in H1, 2010-11.

What would be the reasons behind such upgrades?

The key reasons prompting the rating upgrades during the first six months of 2010-11, include among others improved demand conditions and prospects, better profitability, shorter working capital cycles,improved capital structures and benign outlook for the operating environment and the financial markets.

Companies, who have been performing consistently well, deserve upgrades. Good management, good product and diversified business vertical are certain internal factors which come into test in crisis. Upgrades were led by Infrastructure (12%), real estate/construction (11%) and auto ancillaries (9%). Moreover, there is ?others? category that forms 33%. It encompasses several industries whose individual contribution to the pie would be less than 4%.

Do you think the current NPA level is a matter of concern for banks ?

Indian banks? capital adequacy ratio is very strong. Most of them are well-capitalised. NPA is very much under control. Nobody has NPA more than 2% as compared to the past.

However, competitive pressure is preventing banks from dictating their rates.

Banks are now bullish on infrastructure lending. Will the exposure pose any threat?

Most of the infrastructure projects have lots of sovereign supports. Banks participate in those projects through consortium. Moreover, the infrastructure loan book is equally distributed among different sectors. I do not see any concern about the exposure in infrastructure projects.

Do you foresee any concern over rising FII investment?

FII investments are not bad in general. If FII investments are coming to India at this point of time, it is a good signal. FII money will not come without any reason. However, the anxiety remains as these are usually hot money. But it is a part of market dynamics. As long as investment climate is positive, FII money will not run away from here. India and China are the two ultimate destinations for the investors.

How do you see the growth scenario in India?

Investors have turned a little more apprehensive especially after the recession. Whenever market touches any new high, it gives rise to some discomfort feeling due to past experience that down swing is going to start.

Barring inflation, which is posing concern for the time being, there is no valid reason why there should be a downswing now. India?s GDP is expected to grow at near about 9% and I am a little optimistic about it.