DOWNGRADES UP, UPGRADES DOWN!
By Ruma Dubey
All of a sudden, rating agencies have taken center stage. They are either making front page news for downgrading countries or for downgrading companies. Notice the two common threads – rating agencies and downgrades.
At a time when things are so dynamic, tittering constantly on thin ice, rating agencies, which are ironically responsible for getting us where we are today in the first place, are today extra vigilant. Having learnt well from their lessons of 2008, it is good to see that rating agencies are doing the job for which they have been appointed in the first place – keeping a vigil and forewarning.
After S&Ps downgrade of 9 countries in EU, today our very own desi agencies – CRISIL and ICRA made news, desi news, not international headlines. Both the agencies have put out a report stating that downgrades in ratings of Indian companies have outnumbered upgrades in the recent quarters due to weakening liquidity and the volatile rupee emerging as key risks. They have listed other factors too - demand slowdown, inventory losses, increase in raw material costs and delays in debt servicing.
The CRISIL report downgraded ratings on 148 entities in the third quarter of this fiscal while upgrading ratings on 138 entities. But in the current mood, downgrades have made more news than upgrades. And this is for the first time in eight quarters that downgrades are more than upgrades. And majority of the downgrades are in the textile and construction sectors.
The ICRA report downgraded 407 companies in second half of calendar 2011, against 112 downgrades in the same period in 2010. Upgrades were down to 174 in second half of 2011 from 182 in the corresponding period in 2010. And majority of the downgrades by ICRA were in hotels and power sector.
Thus drawing inference from both the reports, we can say that the outlook for textiles, construction, power and hotels are not really rosy. They have an uphill task ahead and these are the sectors we need to watch out for when they declare their Q3 numbers.
And this downgrade exceeding upgrade is not a ‘blip’ or a one-off occurrence. CRISIL’s report sounds ominous when it says that it expects credit pressure to continue and downgrades will lead the race for the next few quarters. It has estimated that forex debt of about $17 billion will become due for repayment in the next 18 to 24 months and refinancing the debt may be difficult because global investors have become increasingly risk-averse, given their uncertain economies back home.
There is no news which the rating agencies have put out; these are the things which we were as such witnessing, it is only that reading that in black and white makes it all seem a lot more bleaker.
The market has decided to ignore all bleak news and has set its eyes on only one thing – the Credit Policy on 24th Jan where it expects RBI to bring down rates. For the markets that could be a signal of things turning around as the rally in infra stocks indicates that the perception is that lowering of rates could spike up activity in this sector though, realistically, things for the sector remain bleak.
The market seems to have moved ahead and decided to look at the positive things it perceives which could happen. It may seem immature and myopic given the turmoil, domestically and globally but its better to have hope in a better future than brace for more troubled times. Yes, things are rough but in such times, best to take each day at a time, without making foolish trading decisions but investing for the long term as sooner or later, things will turnaround.