The ratio of average downgrades to upgrades for the past seven months is around two times, indicating two downgrades for every one upgrade.

Market participants say rating agencies have turned extra cautious after the IL&FS crisis put more regulatory and market spotlight on their functioning.

"There is stress in various pockets of the debt market, and rating agencies don't want to get caught on the wrong foot again after the IL&FS episode. That is also the reason why the frequency of downgrades by rating agencies has gone up in the past few months," said another fund manager.

A recent note by CARE Ratings showed that the number of downgrades had exceeded the number of upgrades for the first time in six years at the rating agency.

The modified credit ratio (MCR) for CARE in 2018-2019 stood at 0.95; the last time the rating agency's MCR was this low was in 2012-2013, when the economy went through a turbulent phase amid global headwinds. An MCR of one indicates an equal number of upgrades and downgrades.

According to market participants, the flurry of downgrades is a major concern with large-sized exposures still stuck in various stressed segments.

In March, CARE Ratings downgraded Rs 1.13 trillion debt instruments and facilities of Dewan Housing Finance (DHFL), citing moderating financial flexibility, lower liquidity build-up, and stress in the non-banking financial companies (NBFCs).

More recently, there were multi-notch downgrades of the Anil Ambani group's financial arms — Reliance Home Finance and Reliance Commercial Finance — with Rs 35,000 crore of their debt instruments and facilities getting 'below investment grade' rating by CARE Ratings.

Unlike banks, which have better capital to absorb bad debts, MF investors could face the brunt of such downgrades as fund houses have limited capital buffers to write-off bad loans, experts say. The data collated from Value Research and Morningstar shows that mutual funds accounted for more than Rs 20,000 crore of exposure in the four stressed groups -- Essel, DHFL, Anil Ambani group, and IL&FS -- that are facing concerns over the debt sitting on their books.

The IL&FS crisis led to panic in markets with liquidity quickly drying up for borrowers, whose business models relied heavily upon debt markets.