Domestic consumption demand, Govt capex lent support to India Inc's credit profile: ICRA

New Delhi: Rating agency ICRA on Monday said domestic consumption demand, government's infrastructure spending and healthy balance sheets lent support to India Inc's credit profile in the 2023-24 fiscal, even though rise in borrowing cost, sluggish exports and certain global events posed challenges.

In the just-concluded fiscal year, ICRA upgraded two entities for every entity downgraded, in continuation of the upgrade momentum that had been set in motion in FY22.

Aviation, hospitality, auto and auto components, and banks were the few sectors in 2023-24 where the rating upgrades were induced mostly by industry tailwinds.

The domestic rating agency said India Inc bore direct and the indirect effects of multiple challenges in FY24, including inflation, rise in borrowing costs, sub-par monsoon, supply-effects of the continued war between Russia and Ukraine, start of another conflict between Israel and Palestine, the Red Sea crisis, and sluggish exports.

Yet, these did not feel heavier as domestic consumption demand across several sectors, government spending on public infrastructure, and healthy balance sheets lent support to the credit profiles of entities, ICRA said.

ICRA Chief Rating Officer K Ravichandran said "a large majority of rating upgrades were driven by company-specific factors such as expansion in market share or order book, improvement in the cost structure, reduction in project risk, or fresh equity infusion that strengthened the balance sheet".

ICRA maintained a positive outlook for the hospitality sector for 2024-25. Sectors where industry headwinds played spoilsport in FY24 and may continue to do so in the near term include chemicals, cut and polished diamonds, and bulk tea, the agency said.

Overall, as credit profiles continued to improve last year, the number of instances of defaults dipped to five in FY24, compared with 22 in FY23 and 42 in FY22, ICRA said.

The agency expects India's GDP to expand 6.5 per cent in the current fiscal year, lower than 7.6 per cent in the last year.

"Corporate India has shown a high resilience to withstand the rise in borrowing costs over the past two years and is seen to have the capacity to bear the current level of interest rates, before the rate cut cycle likely begins in the latter part of the year," Ravichandran said.

The asset quality of banks and non-banking financial companies (NBFCs) has also been at its decadal best with the profitability and the capitalisation indicators expected to remain healthy in the near term.

"The series of proactive actions taken by the regulators (RBI and Sebi) in the recent years would work to further strengthen the financial system and the capital markets. The key downside factors that could throw a spanner in the works to this radiant prognosis would be how the monsoon pan out this year and how the complicated geopolitical landscape evolves", Ravichandran added.