The Hindu Business Line : Crisil sees buoyant GDP growth

"Significantly, for the first time in eight years, the positive trend in credit quality has been uniform across the manufacturing, finance and infrastructure sectors."

Mumbai , April 6

THE country's economy is likely to remain buoyant in 2004-05 and the gross domestic product (GDP) growth is expected to exceed the average annual growth of the preceding three years, according to Crisil.

In its ratings roundup for 2003-04, Crisil (Credit Rating and Information Services Ltd) said the year ended March 2004 saw rating upgrades outnumbering downgrades by three to one (14 upgrades and 5 downgrades) due to the strengthening business fundamentals of Crisil-rated companies. In fact, upgrades exceeded downgrades for the first time since 1995-96, the rating agency said.

According to its director and chief rating officer, Ms Roopa Kudva: ``these actions capture the beneficial effects of improving business environment on credit quality. The improvement in credit quality has been particularly strong in the commodities and lending businesses''. Significantly, for the first time in eight years, the positive trend in credit quality was uniform across the manufacturing, finance and infrastructure sectors, she said.

With this broad-based strengthening of credit quality, increasing capacity utilisation levels across the industrial economy and the improved environment for raising funds, Crisil believes that there is a strong likelihood that industrial investment will pick up in financial year 2005.

The capital expenditure of 18 large Crisil-rated clients is likely to be about Rs 25,000 crore in 2004-05. If this trend is extrapolated to all entities in Crisil's portfolio, the total capital expenditure of Crisil-rated clients in 2004-05 alone will be about Rs 45,000 crore.

"This roughly equals two-thirds of National Highway Development Programme's ongoing road development plan that is being implemented in two stages and over 8-10 years," the agency said.

The manufacturing sector's credit quality improved in 2002-03 after almost a decade of decline. This positive trend was maintained in 2003-04 as well. The commodity and financial services sectors saw a particularly strong improvement in credit quality in 2003-04.

The commodity sector upgrades were driven by higher product prices and the expectation that product prices would hold their present levels over the medium term. The financial sector upgrades reflect the benefit of higher margins in the lending business as the cost of funds declined more than the yields on loans.