Risk-rewards attitude to drive credit quality: CRISIL

Corporate India's credit fundamentals remain strong after four years of sustained improvement, according to CRISIL's analysis of trends in its rating actions. CRISIL's modified credit ratio (MCR) for 2006-07 (refers to financial year, April 1 to March 31) continues to be above one at 1.01; this is marginally below the level of 1.03 recorded in 2005-06.

The trend of improving credit quality in corporate India, which started when an MCR greater than one was recorded in 2003-04, continued in 2006-07, but with lesser momentum. CRISIL's rated portfolio covers key sectors of the Indian economy and includes most of the top players in each segment.

The manufacturing sector has witnessed a steady improvement in its financial profile, aided by four years of sustained economic growth. This sustained improvement in financial strength has encouraged a large number of companies to announce very large expansion/acquisition plans.

Apart from these expansion plans, corporate India has also displayed a growing appetite for inorganic growth. The total acquisitions already made or announced during 2006 (refers to calendar year, January 1 to December 31) were Rs4340 billion (see Table 2). In the first two months of the current year, 80 additional deals valued at over Rs1000 billion have been announced.

As in earlier years, the manufacturing sector accounted for the bulk of the rating actions during 2006-07, with four upgrades and three downgrades.