Mumbai, Oct 6 (IANS): In line with a slight turnaround in the economy, the credit quality of corporate debt is also showing signs of recovery, according to two rating agencies CRISIL and CARE.

While this is indeed a good sign at the start of the third quarter, further improvement of credit quality is expected to be gradual and any significant recovery will be contingent upon a sustainable increase in investment demand, CRISIL, subsidiary of Standard & Poor's said in statement.

CARE Ratings said there had been a sharp increase in the number of upgrades in the September quarter, where upgrades have doubled over the year-ago period.

The two domestic agencies said their respective ratios of rating movements are pointing towards early signs of recovery in Asia’s third-largest economy which expanded at a healthy pace of 5.7 per cent in the April-June period.

“Corporate India’s credit quality is showing early signs of recovery; upgrades exceeded downgrades in H1 - 741 upgrades compared to 451 downgrades,” CRISIL said in their report.

It also said the improvement in credit quality will be gradual and a significant recovery will be possible only on a sustained increase in investment demand.

Pointing out that improvement in business-related factors was the key driver for 60 percent of the upgrades, CRISIL said export-linked sectors and non-discretionary consumer segments like traders, packaged foods, pharmaceuticals, textiles and farm products are getting enhanced ratings.

Companies in the construction, engineering, capital goods and automobile ancillary sectors had higher downgrades than counterparts in other sectors, it added.

“Credit quality buoyancy in the overall economy is still some time away, and for that to happen, investment demand, which depends on the extent to which the government pushes big ticket reforms, needs to increase substantially,” said CRISIL senior director Pawan Agrawal.