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Owing to their strong underlying growth and accommodative balance sheets, Indian companies it rates are in good credit shape, credit rating agency S&P Global Ratings said on Tuesday.

"Solid earnings momentum over the next two years, by our forecasts, will make for one of the healthiest four-year stretches seen," said S&P Global Ratings analyst Neel Gopalakrishnan.

Added to this is India's economic growth, which is the highest in the region, at 6 per cent for 2023 and 6.9 per cent in 2024, as per S&P Global Ratings forecast, the credit rating agency said.

Moreover, strong onshore liquidity mitigates the impact of tougher external-funding conditions.

“We expect limited rating upside, however, given the improvement in credit quality is reflected in our base-case assumptions. Some 85 per cent of our ratings on India-based corporate and infrastructure entities have a stable outlook. That said, financial profiles are strengthening within current rating categories,” S&P Global Ratings said.

Rising domestic demand in India and sector-specific recovery are more than offsetting negatives, including tough global economic conditions and higher policy and borrowing rates.

According to S&P Global Ratings, debt reduction will likely a remain a focus for many rated companies, though the pace of deleveraging will slow because of rising capital expenditure.

Financial discipline aided by strong operating cash flows led to significant deleveraging in Indian corporates over the past three years.