Mumbai: The credit profile of Indian companies has deteriorated in the nine months of the fiscal hurt by a sharp slowdown in GDP growth. India Ratings (Ind-Ra) an arm of rating agency Fitch has downgraded 188 issuer ratings versus 103 upgrades during the period. As a result the downgrade to upgrade ratio has deteriorated to 1.83 in the first nine months of the fiscal from 0.86 in the fiscal 2019.The aggregate debt of all ratings downgraded to the total aggregate debt of all upgraded ratings also increased to 3.08. Downgrades amounted to Rs 1.53 lakh crore of the rated debt compared to upgrades of Rs 49,600 crore of the rated debt, mainly because downgrades of some debt-heavy financial sector issuers which contributed 45% by value of downgrades."The extent of the sharp and sudden changes to macroeconomic parameters were beyond the normal stress factored into the ratings. This resulted in higher-than-expected deterioration in the credit profiles of leveraged entities across rating categories. Not only did the aggregate debt downgrade to upgrade increase to one of the highest levels, the ratio increased with every passing quarter, as the GDP estimates were being revised down,” said Arvind Rao, director, Ind-Ra.Each quarter in this fiscal year the total debt downgraded to debt upgraded has increased to 1.59, 2.03 and 2.75, for the respective three quarters mainly due to the growth slowdown. Ind-Ra itself has revised its GDP forecasts an unprecedented five times within a year, to 5% from initial estimates of 7.5%.A sharp drop in private consumption, continuing low investments and increasing working capital intensity led to the deterioration in corporate credit profiles this fiscal. This was compounded by a drying up in liquidity as banks, non-banking financial companies and mutual funds turned risk-averse. As a result defaults increased to 4.9% of all issuers reviewed during this period up from 2.9% last year.Industries most impacted by the slowdown were capital goods (mainly tier II construction & engineering), utilities (renewable energy), food, beverages and tobacco. “With the central and state governments bearing the heavy burden of propelling demand and monetary policy providing some cushion, it will be critical for the other pillars to start contributing to ease the credit pressure,” said Rakesh Valecha, senior director, Ind-Ra.Increasing working capital intensity and drop in profitability emerged as the leading reasons for the rating downgrades in more than half of the cases. Working capital pressures were more prominent where state governments were counterparts or issuers faced slowdown in exports. Ind-Ra’s state finances outlook has been revised to ‘stable-to-negative’ for fiscal 2021 from stable, as they continue to face revenue pressures.