India Inc continued to demonstrate stability despite looming global trade uncertainties, as reflected in its improved credit ratio of 2.35 in H2 FY25, up from 1.62 in H1 FY25, according to a CareEdge Ratings report released on April 1.
This improvement was primarily fueled by sectors benefiting from strong domestic demand and government expenditure.
The upgrade rate increased to 14% in H2 FY25 from 12% in the previous half, with capital goods, automotive, real estate, and infrastructure leading the recovery.
At the same time, the downgrade rate declined by 200 basis points to 6%, primarily due to asset quality concerns in Non-Banking Financial Companies (NBFCs) catering to microfinance and unsecured loans.
Additionally, pricing pressures in small-sized Chemical and Iron & Steel firms, as well as challenges faced by export-driven Cut and Polished Diamond players, contributed to rating downgrades.
US Tariffs Pose Risks For Export-Oriented Sectors
Despite the overall improvement, CareEdge Ratings cautioned that upcoming US tariffs could challenge the momentum for export-driven industries, especially those reliant on discretionary spending.
Sachin Gupta, Executive Director and Chief Rating Officer at CareEdge Ratings, stated, “The boost in the credit ratio highlights India Inc’s resilience, but potential tariff impositions may lead to heightened price competition among affected economies.”
However, the report highlighted that trade agreements and rupee depreciation could provide much-needed relief to exporters, mitigating some of the risks posed by global trade tensions.
Manufacturing & Services Sectors Witness Rebound
India’s manufacturing and services sectors experienced notable improvement, with the credit ratio for these industries climbing from 1.21 in H1 FY25 to 2.06 in H2 FY25.
The uptick reflected stronger business fundamentals, particularly among mid-sized, domestically focused firms, despite ongoing global uncertainties.
Ranjan Sharma, Senior Director at CareEdge Ratings, noted, “The improvement in credit ratios was evenly spread across investment-grade and sub-investment-grade firms, driven by mid-corporate players capitalizing on robust domestic demand.” Meanwhile, large corporations maintained a healthy credit profile, with stability observed across previous periods.
Sector-Wise Trends: Infrastructure & BFSI
The infrastructure sector sustained its upward trend, with its credit ratio rising to 3.94, driven by upgrades in transport infrastructure and power projects.
The services sector also performed well, with hospitality and healthcare continuing on a strong trajectory, while pharmaceuticals maintained steady growth.
However, the Banking, Financial Services, and Insurance (BFSI) sector saw a significant decline in its credit ratio, dropping from 2.75 in H1 FY25 to 1.07 in H2 FY25.
The moderation reflects emerging stress in certain lending segments, particularly unsecured loans and microfinance.
As India Inc navigates global economic uncertainties, its deleveraged balance sheets and government-backed infrastructure spending provide a sturdy shield against volatility.
While domestic demand remains strong, external risks such as trade barriers and global inflationary pressures will play a crucial role in shaping future corporate credit trends.
The resilience of mid-sized enterprises and infrastructure-led growth will be key factors in maintaining stability in the upcoming quarters.
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