Credit Quality Trends for Debt Investors: More Positives, Fewer Concerns

Corporate balance sheets are leaner, and lower debt ratio is supporting repayments

- Joydeep Sen

Investments have multiple types of risk. Equity investments typically carry volatility risk. Debt or bond investments are relatively stable but come with default or credit risk. Today, we will discuss the evolving scenario for credit risk.

Credit rating companies publish a metric called credit rating ratio or simply credit ratio. It is the ratio of the number of entities that were upgraded to those that were downgraded in a period of six months or one year. If 100 entities were upgraded and 100 were downgraded, the ratio is 1. Hence 1 is the "par" number and anything more than 1 is positive.

For Crisil, the credit ratio was 2.64 in the second half of FY25 (October 2024 to March 2025). Crisil upgraded 423 entities and downgraded 160. In the first half (April to September 2024), the credit ratio was 2.75. After FY21, Crisil's credit ratio has been significantly more than 1.

For Icra, the ratio was 2 in FY25. There were 301 upgrades and 150 downgrades. As in the case of Crisil, Icra's credit ratio has been in a range of 2 to 3 since FY21. For CareEdge, the ratio was 2.35 in the second half of FY25 and 1.62 in the first half.