Indian companies are seeing accelerated pace of credit downgrades while upgrades are slowing, as pressure on profitability mounts and demand moderates, rating agency Crisil said on Tuesday.
Crisil's downgrade rate has gone up to 3.1 per cent in April-Sept. 2011, compared to 2.9 per cent in the second-half of the last fiscal year. The upgrade rate has fallen to 4.6 per cent from 6.3 per cent in the same period.
Crisil rates about 7,500 companies and Rating Action Ratio, its gauge of relative frequency of upgrades and downgrades, has fallen to 1.03 from 1.1 and may fall further.
"We are expecting further downward pressure (on rating action ratio), primarily driven by demand moderation," Roopa Kudva, managing director of Crisil said, adding 10 of the top 20 industries in terms of loans outstanding are showing clear signs of slowdown in growth.
Crisil upgraded the ratings of 313 companies and downgraded 207 companies in April-Sept. compared to 675 upgrades and 269 downgrades in 2010/11.
Demand has been significantly dented in consumption-linked automobiles, real estate, textile and retail sectors, while sales growth has started faltering in investment demand-driven cement, capital goods and construction sectors, Crisil said.
It has projected a growth rate of 2-4 per cent for passenger vehicles in 2011/12, significantly lower from an earlier forecast of 8-10 per cent.
India's auto sector grew at a breckneck 30 per cent in the previous fiscal but has lately faltered, registering a drop in sales in July and August.
Rate hikes by the Reserve Bank of India (RBI) - a dozen times since March 2010 - to tame a stubbornly high inflation has hurt consumer sentiment and dissuaded buyers from buying cars or properties on credit.
The rating agency said growth in export, which has remained buoyant so far, too may be dragged down by a slowdown in the United States and uncertainty in Europe.
Profitability will remain under pressure and high interest rates, wage and input costs would continue to reduce margins, it said.
Indian companies' second quarter margins would contract by 100 bps on slower volume growth, higher costs, Crisil said last week.
