Mumbai, Jan 19 (IANS): Weak demand and high debt continue to pull down the credit profiles of Indian companies in an overall context of lacklustre economic conditions in the country, ratings agency Standard & Poor's (S&P) said on Tuesday.

"Companies still face anaemic demand and lower capacity utilisation, resulting in weak profitability," S&P said in a report titled "Revival In Domestic Demand Can Reduce Downside Risk For Indian Companies In 2016".

"Economic conditions in India remain lacklustre despite several government measures to boost investments in the economy," said S&P's credit analyst Mehul Sukkawala.

"If these companies can manage this (6-9 month) period without significant damage to their financial strength, we believe their credit profiles could have bottomed out," he said.

"The first six to nine months of 2016 will be crucial for rated Indian companies. This period will provide signs on whether domestic demand is reviving, government reforms are moving ahead, and global economic conditions are stabilizing," he added.

Indian companies with high levels of debt remain vulnerable to downgrades, while lower commodity prices have also reduced headroom for firms operating in commodity linked sectors such as metals and oil and gas, the American agency said.

S&P's said the credit quality of half its portfolio of 22 rated firms in India is expected to remain stable in 2016.

The report also said rated companies are at their peak debt levels following a significant increase in debt-funded investments over the past five years, thus limiting the scope for positive rating action.

On the fallout of global developments, S&P said the Chinese slowdown will have limited direct impact while higher US interest rates should be manageable.

"A slowdown in China is not a key factor for the credit profiles of most rated Indian companies because these companies target the domestic or developed markets.

"That said, any further slowdown in China could trigger significant turbulence in the global financial and commodity markets and hurt Indian companies," Sukkawala said.

The impact of a US interest rate hike on Indian firms would come largely through the exchange rate channels.

"The expectations of a rise in US interest rates should be manageable but any related fallout from sudden and significant depreciation of the Indian rupee could pose a bigger risk to our rated portfolio," said S&P.

The rupee slid on Friday by 30 paise to a new 28-month low at 67.59 owing to fresh US dollar demand from importers caused by continuous foreign capital outflows.