Mumbai: Companies in India are being upgraded at the fastest pace in five years as Prime Minister Narendra Modi’s efforts to revive economic growth bear fruit.

Icra Ltd, the Indian arm of Moody’s Investors Service, raised the credit scores of 870 local borrowers last year and cut the ratings of 539, the best upgrade to downgrade ratio since 2009. Crisil Ltd, a Standard and Poor’s unit, upgraded 741 companies in the six months to 30 September and downgraded 451, turning the ratio bullish for the first time in 30 months.

Growth in Asia’s third-biggest economy could accelerate to as high as 6.5% next fiscal year, finance minister Arun Jaitley said on 12 December, as Modi works to cut red tape and spur foreign investment. Earnings of companies listed on India’s benchmark Sensex are expected to increase an average 26.5% over the next 12 months versus 10.8% for the MSCI Emerging Markets Index, Bloomberg data show.

“Business sentiment has improved considerably, buoyed by policy measures," said Anjan Ghosh, Icra’s Mumbai-based chief rating officer and head of corporate sector ratings. “With a stable macroeconomic environment, softening of commodity prices and some signs of a pick up in demand, corporate sector earnings are expected to improve."

Cars and cement

Industries recording a higher number of upgrades this fiscal year include construction, automobiles, telecommunications and pharmaceuticals, CARE Ratings Ltd said in a 6 January report. The credit quality of sugar, water supply and cement companies moderated, CARE said.

The coal mining sector has seen a deterioration in credit quality, CARE’s chief general manager of ratings Arun Kumar wrote in the report. The upgrade-downgrade ratio for the sector dropped to 0.57 for the fiscal year ending 31 March from 0.71 in the previous year. There’s a 71% correlation between the corporate credit ratio and economic growth, he said.

Modi has expedited environmental clearances for about 298 projects in mining to construction since he came to office in May. During a visit to the US in September last year, he told a gathering at Madison Square Garden that his government is streamlining regulations to make it easier to do business in India.

Last month, the government issued an executive order making it easier for companies to buy land tracts, scrapping a law by the previous government that had tripped up projects from transport and power to housing. The ordinance needs parliament approval to become law.

‘Modi dividend’

Even so, there’s still a backlog of plans awaiting approval of about $200 billion of projects, figures from government monitoring body the Project Monitoring Group show. Modi has seen his policy proposals stall in the upper house, where his ruling Bharatiya Janata Party (BJP) holds 18% of the 245 seats. The BJP holds a majority in the lower house.

India has benefited from a “Modi dividend," and economic growth could accelerate to 6.4% in 2015, according to a World Bank report. Its economy expanded 5.3% in the quarter to 30 September versus 5.7% the preceding three months, which was the most in two years.

Moody’s said in October that the policies of Modi should also enhance the sovereign’s credit profile. Moody’s rates India Baa3 with a stable outlook, while S&P ranks it BBB-, also one level above speculative grade.

The risk of industrial companies in India reneging on their debt over the coming 12 months fell to 0.35%, Bloomberg’s default risk model showed on 8 January. The median probability of non-payment is down from as much as 1.7% during the 2008 global financial crisis, according to the gauge, which is based on factors including share performance and debt metrics.

“Corporate India’s credit quality is showing early signs of recovery," Pawan Agrawal, the chief analytical officer in Mumbai at Crisil, said. “We expect a gradual improvement in credit quality over the medium term as economic growth recovers from the lows." Bloomberg