A lot of investment in Indian stocks is based on ratings and while there are questions over when the markets will bottom out, the latest ratings by credit rating agency Crisil show that only two little known Indian companies have got rating upgrades.
So, are the ratings reliable and do the downgrades only come in when no one's taken by surprise?
According to the latest report released by Crisil only two little known Indian companies face better prospects than last year and 84 are rated to fare worse and after three years with no defaults, there were as many as 13 this year.
But six months after the pain began, the late realisation of lowered expectations actually shows ratings are behind the curve .So, are the rating agencies fair-weather friends who are now playing it safe in the times of slowdown.
Ashvin Parekh, Partner at E&Y, said, “The speed with which the downgrades happen make us believe that you know maybe we were relying on something that was not entirely worth relying upon so maybe we were giving far too much importance to something that we shouldn’t have.”
The pain is spread across sectors from the realtors to the world-renowned auto space. Three months of positive growth in sales notwithstanding, the largest number of downgrades came in the auto sector followed by the financial services sector and 80 per cent of downgrades were linked to two factors.
Raman Oberoi, Senior Director of Crisil Rating, “One was the demand slowdown which we anticipated six months back and the other linked to what you spoke about, interest rates and availability of financing at a competitive price.”
So, the number of stable Indian companies is declining and those with negative prospects register a massive jump. Now, if you believe this should have come six months back, there’s another hint.
“We do expect that there are going to be more downgrades in the next six months also,” Oberoi said.
Hence, given the volatile economic scenario where governments were acting on a weekly basis, the need of the hour is a dynamic ratings system, which tells you that things are getting worse, before they already have.