Last updated: 16 Jul, 2020 | 03:40 pm
How Reliable Are Rating Agencies?
Let’s see this via a few recent examples:
Indiabulls Housing Finance, a previously AAA-rated company, witnessed its YTM increase from 9% to 26% in a span of 1 year.
CRISIL rating agency downgraded Indiabulls Housing Finance rating from AAA to AA+ on 10th September 2019 and from AA+ to AA on 7th Feb 2020.
A similar pattern can be observed with SREI Infrastructure Finance Company where Brickwork rating agency downgraded it from AA to A+ on 10th September 2019. The yields had been continuously increasing without any rating action till that point.
Below is Shriram Transport Finance Company, where the YTM has shot from 10% to 15% in a span of 6 months without a rating change.
The only action was an outlook revision that was done by CRISIL on 6th May 2020, when YTM’s had already shot up significantly. The Rating of the company still stands at AA+ even though there is significant stress in the company.
In Contrast, below is the YTM movement of Tata Capital Financial Services where the YTM has moved almost in line with G-sec as the company has strong fundamentals and liquidity. The YTM is predicting exactly that.
'INDmoney uses a probability of default based debt analysis model. The model looks at the internal stress of a company and sends an alert as soon as risk increases.'
As moratorium starts getting lifted, we expect a sharp decline in credit quality of a lot of companies. The number of downgrades are expected to increase.
We advise you to invest only in High-Quality AAA-rated companies.
Have more questions? Click on ‘Ask Advisor’ button to contact your family wealth office.