The credit metrics of BSE 500 corporates, an index of 500 top public listed firms, (excluding banking and financial services) have deteriorated to their lowest level since financial year 2008, a report said.
The report by India Ratings , the Indian arm of Fitch, said there is a significant rise in debt levels without a commensurate increase in cash margins of these firms and amid mounting economic stress, credit metrics of these companies are “unlikely” to show a significant improvement in FY14.
The report further noted that the current business environment is more challenging and stressful than the conditions in 2001-03 and during the second half of FY09.
In such situations, corporates have to depend upon the strength of their own balance sheet as well as on their ability to generate free cash flows and maintain a liquidity cushion, it said.
From 2009 to 2012, debt levels registered an average yearly growth of 20% but there was moderate growth in debt levels in fiscal year 2013 (10% year-on-year) largely owing to low capex and banks’ aversion to incremental lending particularly to certain stressed sectors.
Also going forward, a significant rise in debt level in FY14 was not envisaged as a majority of the incremental debts are likely to be raised for expanding working capital cycle.