Liquidity stress telling on Indian debt market: CARE

The Indian debt and credit markets are showing signs of stress, a CARE Ratings report has said.

"Downgrades in NBFC and HFC segment due to the continuing liquidity stress are making it difficult for entities to raise finance in a timely manner as also delaying monetisation plans," CARE said.

The CARE Ratings Debt Quality Index (CDQI) improved by 0.4 percent during April 2018-March 2019. Thereafter, it increased during April 2019 due to debt issuances in the higher-rated entities but started falling from June.

"The index fell sharply in June 2019 mainly due to moderation in the liquidity scenario for NBFCs and HFCs resulting in sharp rating migration. The index further declined marginally by 0.16 percent in July and remained more or less stable in August. Thereafter, it declined by 0.54 percent in the month of September," CARE said.

The CDQI captures, on a scale of 100 (index value for the base year FY12), whether the quality of debt is improving or declining.

The report shows trends for 1,602 companies from CARE’s portfolio of 2,980 companies as of March 2012 (the base year).

An upward movement indicates an improvement in the quality of debt benchmarked against the base year. "As it is contemporary with minimum time lags, the health of the debt and credit markets is encapsulated on a near-real-time basis," said CARE.

"Currently, the volume of debt of the sample companies stands at Rs 39.34 lakh crore in September 2019," CARE Ratings added.