Crisil said there were 478 downgrades to 417 upgrades and as much as 86 per cent of the downgrades were due to demand slowdown and stretch in liquidity.
The analysis conducted by Crisil on 2,481 firms rated BBB- and above indicated a fourth of these firms were highly vulnerable to demand slowdown and a sixth to liquidity constraints.
"Working capital management emerged as a clear differentiator of credit quality. Firms with longer working capital cycles - or gross current assets (GCA) exceeding 240 days of sales - have witnessed twice the number of downgrades compared with upgrades," said Ramraj Pai, President, CRISIL Ratings.
Pai also said that the gross non-performing assets (NPAs) of banks will increase sharply by 110 basis points to 4.4 per cent of gross advances by the end of this fiscal, up sharply from 3.3 per cent last year.
"Crisil believes downgrades will continue to outnumber upgrades over the near term, and intensity of downgrades may even increase," a statement said.
Dion Global Solutions Ltd.