1st April, 2025: CareEdge Ratings’ Credit Ratio, which measures the ratio of upgrades to downgrades, strengthened to 2.35 times in H2 FY25, up from 1.62 times in H1 FY25. During this period, there were 386 upgrades and 164 downgrades.
The upgrade rate increased to 14% from 12% in the first half, driven by sectors that benefited from strong domestic consumption and government spending. Meanwhile, the downgrade rate dropped 200 bps to 6%, driven by asset quality concerns in NBFCs catering to microfinance and unsecured business loans, alongside pricing pressures faced by small-sized entities in the Chemical and Iron & Steel sectors, as well as export-focused Cut and Polished Diamond players.
Sachin Gupta, Executive Director and Chief Rating Officer, CareEdge Ratings, shared his insights on the evolving economic landscape, stating, “Despite global headwinds, the credit ratio for CareEdge Ratings’ portfolio strengthened in the second half of FY25—a testament to the resilience of India Inc. However, the journey ahead is far from smooth. The imposition of US tariffs could disrupt momentum for export-driven sectors, particularly those reliant on discretionary spending, while also sparking intense price competition from other affected economies. This uncertainty could keep private sector capital expenditure on the sidelines until clearer signals emerge. That said, not all is bleak—trade agreements and rupee depreciation could offer much-needed relief to exporters. At the same time, Corporate India’s strong, deleveraged balance sheets act as a sturdy shield against external volatility.”
CareEdge Ratings’ credit ratio for the manufacturing and services sector has seen a notable rebound, with its credit ratio rising from 1.21 in H1 FY25 to 2.06 in H2 FY25. The uptick reflects improving business fundamentals, particularly among mid-sized, domestic-focused entities, even as global headwinds persist. Ranjan Sharma, Senior Director, CareEdge Ratings (Corporate Ratings), noted the broad-based nature of this recovery, stating, “The improvement in credit ratio was evenly spread across both investment grade and sub-investment grade rating categories, driven by mid-corporate players leveraging strong domestic demand. Large corporates, too, maintained a healthy credit ratio, continuing their stable performance from previous periods. The sectors leading the upgrade wave included capital goods, automotive and automotive components, and real estate, all of which benefited from rising consumption and momentum in infrastructure. The services sector also witnessed sustained improvement, with hospitality and healthcare continuing their strong upward trajectory, while pharmaceuticals remained a consistent performer, reinforcing its long-standing resilience.”
However, not all industries rode the wave of optimism. Basic and commodity chemicals, smaller iron & steel players, and export-focused CPD entities faced credit downgrades. The chemicals sector struggled with pricing pressures, while smaller steel manufacturers faced heightened competition from Chinese imports. Meanwhile, some trading and distribution entities also found themselves grappling with market volatility.
The credit ratio of the infrastructure sector witnessed a continued uptrend in H2FY25 to 3.94, with the Transport Infrastructure and Power sectors leading the upgrades. Rajashree Murkute, Senior Director at CareEdge Ratings (Infrastructure Ratings), highlighted, “Key factors driving these upgrades include the successful commissioning of projects, particularly in the road Hybrid Annuity Model (HAM) segment and solar power generation. Additionally, timely payments from most state distribution utilities have accelerated deleveraging for power producers and transmission infrastructure providers. A shift in ownership to financially strong sponsors or Infrastructure Investment Trusts (InvITs) has also played a pivotal role in enhancing credit quality for both, project assets as well as developers. However, challenges persist. Delays in receipt of requisite approvals, project execution and weak order books have increased working capital pressures for some mid-sized EPC players, compromising their credit profile. Besides, increased leverage due to top-up debt has weakened the financial flexibility of certain project assets, posing additional risks.”
The Banking, Financial Services, and Insurance (BFSI) sector experienced a sharp moderation in its credit ratio, declining from 2.75 in H1 FY25 to 1.07 in H2 FY25, reflecting emerging stress in select lending segments. While the sector remains fundamentally strong, challenges in asset quality and profitability have affected certain areas. Sanjay Agarwal, Senior Director at CareEdge Ratings (BFSI Ratings), attributed the decline to pressures in the microfinance and unsecured business loan segments, stating, “The increase in loan sizes, coupled with rising debt levels per borrower, has heightened the financial strain on MFI borrowers, leading to asset quality concerns for NBFCs in this space. Consequently, NBFCs catering to microfinance and unsecured business loans are expected to witness elevated credit costs at least until H1FY26.” Despite these headwinds, the overall credit outlook for the BFSI sector remains stable, supported by healthy capitalisation levels among NBFCs and banks, which continue to provide a strong buffer against potential stress.”
In summary, while Corporate India continues to hold its ground, CareEdge Ratings expects the credit ratio to remain range-bound in the near term, navigating the crosscurrents of global headwinds. The resilience of Indian corporates is reinforced by strong and deleveraged balance sheets, providing a crucial buffer against external shocks. While the strength of domestic demand will serve as a key anchor, the unfolding global tariff war and geopolitical uncertainties will shape the road ahead.