Moneycontrol Pro Panorama: Rising credit upgrades indicate a healthier corporate sector

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

The world can’t have enough of deals it seems and it’s a good time to be an investment banker (unless you were hit by the Archegos blow-up). The first three months of 2021 alone have seen deals worth $1.3trillion which is more than any quarter since 1980, reported the FT using data from Refinitiv (free to read for Pro subscribers). The US has been the main contributor to this growth in deals, with the SPAC structure leading the charge by offering a less cumbersome and quicker way to list in one of the most sought after listing destinations.

Deal-making in Asia Pacific has been less frenzied and one can feel that in India as well. Apart from a few companies that struck large deals during the pandemic, India Inc’s focus has been to conserve capital, cut costs and improve margins, and stay in good financial health till the pandemic storm blows over. As the resurgence in COVID-19 cases shows, there is some way to go before we can breathe easy.

The conservative approach followed by companies and the economic recovery after lockdowns ended are paying dividends. Crisil’s credit ratio, which measures upgrades to downgrades, had fallen to 0.54 in the first half of FY21 but has rebounded smartly to 1.33 in the second half. Higher upgrades in sectors that have proved to be resilient are the main reason for this improvement. Most sectors have recovered in full or are nearly there (85% to 100% recovery) but a few sectors such as airlines and airport operators, hotels, residential real estate and industrials have some way to go before they get there. A second round of restrictions and lockdowns poses a risk to these sectors.

Crisil expects FY22 to see upgrades outnumber downgrades. The risks Crisil warns about are a second round of widespread lockdowns, delays in implementing budget measures and a weak monsoon.

While FY22 does seem to be holding out promise on the earnings front, the picture for investors is complicated by how flows from foreign and domestic investors will play out during the fiscal. In How will FY22 be different than FY 21 for the markets?, we talk about why FY22 is off to a choppy start and why investors should look to the second half of FY22 earnings’ performance to get a better idea of their financial health.

Investing insights from our research team

Should investors bet on IDBI Bank?

Hawkins Cookers: Secular growth prospects remain strong

Road construction: Why some stocks can be significantly rerated

What else are we reading today?Why should banks foot the bill for compound interest waiver?

Can India wean Bangladesh away from China’s embrace?

Shipping ministry’s opposition to SCI privatisation is not credible

How long do we have to wait for a revival of the residential housing sector?

The key takeaways from India’s balance of payments for the December 2020 quarter

Why Adani Transmission is closing the gap with Power Grid's market cap despite smaller revenues

The World Happiness Report is no April Fool spoof, it’s a sinister plot

Technical picks: Ramco Cements, Adani Ports, PEL and Infosys (These are published every trading day before markets open and can be read on the app)

Ravi Ananthanarayanan

Moneycontrol Pro​