Tuesday, Apr 08, 2003
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By Our Staff Correspondent
According to the latest Crisil ratings round up, in the 12 months ended March 2003, Crisil's portfolio of manufacturing companies saw upgrades outnumber downgrades for the first time since 1996. The strong improvement in the credit trajectory in the manufacturing sector was led by core sectors such as steel and key industrial sectors such as automobiles. Ms. Roopa Kudva, executive director and chief rating officer, Crisil, said, "The upturn in these sectors was aided, in significant measure, by the positive economic impact of the increased investment in the roads sector that was seen in this year. Though the current war situation in Iraq has introduced a new uncertainty in the economic environment, it is likely that the continuing investment in the infrastructure sector, especially roads, would provide much needed traction to the Indian industrial economy over the next two years.'' The improved credit ratio for Crisil's long-term ratings in the 12 months ended March 2003 comprised a reduction in the number of downgrades to 19 from 38 in 2001-02 and an increase in the number of upgrades to 14 from four. This was despite the weakness seen in the agriculture sector this year. Therefore, Crisil expects credit fundamentals to remain strong over the next few years barring another poor monsoon or a global economic downturn as a consequence of the present war in Iraq. Crisil's modified credit ratio (MCR), which is defined as the ratio of (upgrades + reaffirmations) to (downgrades + reaffirmations), is an effective indicator of systemic credit quality trends. Its MCR for long-term ratings improved to 0.98 in the current year from 0.85 in 2001-02 indicating a sharp improvement in credit fundamentals. This improvement was most pronounced in the manufacturing sector, which accounted for all the 14 long-term rating upgrades in this year. Moreover, the MCR for the manufacturing sector in 2002-03 was greater than one (meaning more upgrades than downgrades) for the first time since 1996. This upturn in the manufacturing sector was led by a revival in core sector industries such as cement and steel as well as other key sectors such as automobiles. The increased investment in this year as part of the ongoing nationwide road development programme was a key contributor to this upturn. Crisil's MCR has exhibited a strong correlation with macro-economic indicators such as the growth rates of the index of industrial production (IIP) and gross domestic product (GDP) as well as movements in real interest rates. The improvement in the modified credit ratio in 2002-03 reflects the improvement in IIP and presages an improved GDP growth rate for 2003-04. (GDP growth in 2003-04 anticipated at 6.5 per cent in an independent analysis of macroeconomic fundamentals carried out by the Crisil Centre for Economic Research in March 2003). The stability of Crisil's ratings in 2002-03 was at a five-year high. Crisil reaffirmed about 81 per cent all its continuing (non-defaulted) long-term ratings in 2002-03 as compared to the comparable S&P level of about 74 per cent in calendar year 2002. The trend of improving stability of Crisil's ratings over the last four years is validated by a corresponding reduction in the number of defaults to only two in this period.
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