There is a significant rise is debt levels without a commensurate increase in cash margins of these firms and amid mounting economic stress, credit metrics of these companies are "unlikely" to show a significant improvement in FY'14.

According to India Ratings & Research, the total debt of BSE 500 corporates rose by about 192 percent over FY'08-FY'13, while interest expenses rose by a staggering 226 percent over the same period.

The report further noted that the current business environment is more challenging and stressful than the conditions in 2001-03 and during the second half of FY'09.

"The current economic situation provides limited elbow room to the Reserve Bank of India to cut interest rates and for the government of India to embark on large-scale policy stimulus," India Ratings said.

In such a situation, corporates have to depend upon the strength of their own balance sheet as well as on their ability to generate free cash flows and maintain a liquidity cushion, it said.

During fiscal year 2009 to 2012, debt levels registered an average yearly growth of 20 percent but there was moderate growth in debt levels in fiscal year 2013 (10 percent y-o-y) largely owing to low capex and banks' aversion to incremental lending particularly to certain stressed sectors.

Also going forward, Ind-Ratings does not envisage a significant rise in debt level in FY'14 as a majority of the incremental debt are likely be raised for expanding working capital cycle.

Sectorwise, no immediate improvement is likely for the capital intensive and highly leveraged sectors such as construction & infrastructure, shipping, oil & gas and metal & mining, the report said.

However, sectors like pharmaceuticals, IT services (excluding companies with appetite for leveraged acquisition), cement (large integrated players) and FMCG are unlikely to see any deterioration in credit profile considering their stabilising margins and low leverage levels, it added.

PTI