India’s economic growth is slowing, but is still estimated to be a robust 7.1 per cent in 2008-09. Ratings downgrades are, however, happening in bulk. In just the first 40 days of 2009, rating downgrades of companies have exceeded the total number seen in the whole of 2008.
Tata Motors, Hero Motors, Ashok Leyland, Mukand, DLF, Emaar MGF Land, Tata Motor Finance, Unitech, Wockhardt, Maytas Infra, NRB Bearings and Arvind are among 27 companies that have seen their ratings downgraded by agencies.
More downgrades could follow with CRISIL, the Indian subsidiary of global ratings firm Standard & Poor’s, which has announced maximum number of downgrades, putting out a credit alert on non-ferrous metals producers, which have suffered severe earnings erosion.
D R Dogra, Deputy Managing Director at CARE Ratings, said “there will be more downgrades going ahead because of the difficult economic conditions.”
Naresh Takkar, Managing Director of Delhi-based ICRA Ltd, said “the demand slowdown and profitability pressures are expected to persist for sometime. There has been deterioration in business conditions especially in real estate, textiles and auto components.”
“Because of the difficult conditions, we expect large companies to squeeze their suppliers both on profitability and payment terms, resulting in liquidity pressure for suppliers and vendors,” Takkar said.
The number of downgrades would continue to exceed the upgrades for the second consecutive year. In 2008, the total upgrades were 10 against 22 downgrades. “Any reaffirmation of a rating is now taken as an upgrade,” said Dogra.