Credit quality outlook FY25: Crisil Ratings announced on Monday that the credit quality outlook for Indian corporates remains positive for the April-September period of the 2024-25 fiscal year, with upgrades continuing to outpace downgrades. In the previous fiscal year, Crisil recorded 409 rating upgrades and 228 downgrades. Notably, some export-linked sectors, such as textile and seafood, witnessed a higher downgrade rate due to subdued global demand or high-cost inventory affecting profitability.

"India Inc's credit quality outlook is positive for the first half of fiscal 2025, with upgrades expected to outnumber downgrades. The multiplier effect of government capex will continue to propel infrastructure and linked sectors. Healthy balance sheets will further bolster the credit quality outlook, with capex funding seen as prudent," stated Crisil Ratings.

According to Crisil, outstanding bank credit is projected to surpass Rs 200 lakh crore by March 2025, up from Rs 172 lakh crore a year earlier, despite an anticipated moderation in the rate of credit growth.

While the Indian economy is anticipated to maintain its position as the fastest-growing large economy in the current fiscal with a GDP growth of 6.8 per cent, the growth rate is expected to moderate from the 7.6 per cent recorded in 2023-24, attributed to high-interest rates and lower fiscal impulse to growth.

Gurpreet Chhatwal, Managing Director of Crisil Ratings, said that the three key pillars supporting India Inc's credit quality – deleveraged balance sheets, sustained domestic demand, and government-led capex – kept the upgrade rate elevated in the second half of FY24. Chhatwal expressed optimism, anticipating a broad-based pickup in private capex due to healthy balance sheets across most sectors, peak levels of capacity utilisation, and expected interest rate cuts. However, sectors with export linkages may face uncertainties.

Krishnan Sitaraman, Senior Director and Chief Ratings Officer at Crisil Ratings, highlighted the likelihood of global interest rate cuts in 2024, anticipating the RBI to follow suit in the second half of the current fiscal. Sitaraman further stressed that credit quality is expected to remain positive.

Looking ahead to FY25, Crisil Ratings identified 21 out of 26 corporate sectors with a strong to favorable credit quality outlook, supported by robust balance sheets and healthy operating cash flows. These sectors include auto-component manufacturers, hospitality and education companies, and those benefiting from government infrastructure spending. However, four sectors—specialty chemicals, agrochemicals, textile cotton spinning, and diamond polishers—face headwinds due to subdued global macroeconomic conditions.

The RBI is set to announce its first monetary policy review for the current fiscal on April 5.

Overall, Crisil anticipates a positive trajectory for India Inc's credit quality in the coming months, underpinned by favorable macroeconomic factors and prudent fiscal policies.

(With PTI inputs.)