Sharp recovery seen in corporate credit quality in Apr-Aug'21 as compared to FY20, says Acuite

A sharp recovery was seen in the corporate credit quality and ratings upgrade of corporates during April-August 2021 in comparison to FY20, Acuite Ratings and Research said in a report on September 8.

As per the report, the number of rating upgrades by credit rating agencies increased by 2.4 times in the April-August 2021 period as compared to the year-ago period while downgrades reduced by 40 percent.

The upsurge in the Credit Ratio in the first five months can be explained due to resilient corporate performance in FY21, the agency said. Credit ratio here refers to ratio of upgrades to downgrades in a given period excluding non-cooperative issuers. A significant improvement was seen in the performance of the manufacturing sector including lower debt levels, the report said.

Further, a steady progress in the pace of vaccination and gradually declining risk of third wave along with revival in private consumption demand from H2FY22 could have been factored in the ratings upgrade. Monetary policy support and government's relief measures like Emergency Credit Line Guarantee Scheme (ECLGS) helped enterprises to meet their working capital requirements, the report said.

The other factors that might have helped in ratings upgrade include buoyancy in the export sector, the agency said, Favourable monsoon conditions and healthy agricultural output too helped.

The report highlights that distinct recovery was seen in the core infrastructure sectors along with significant revival in sectors such as auto, gems and jewellery and textiles with expectation of a pent up demand.

Sectors like chemicals, pharma and fertilizer strengthened their position over the last one year.