Upcoming Cash Flow in Question

Upcoming Cash Flow in Question

Last updated: 03 Sep, 2020 | 09:02 am

Upcoming Cash Flow in Question

Our debt analysis model has red-flagged companies with stress in their financials. You have debt funds that hold papers of these companies. A few of the bonds of these companies have payments due this week.

There is a high probability that these payments might not be honoured. It is extremely important to take pre-emptive action and protect your capital.

What is INDmoney’s debt analysis model?

  • The model uses the probability of default of the company, credit rating and changes in YTM of the bond to determine the risk of the company and the probability of them honouring their debt commitments.
  • Whenever the risk of a company increases, our model red flags all the bonds of that company and sends an alert.

How are we determining this?

  • Our model has red-flagged a list of 60 companies that have a high probability of not honouring their debt commitments in the near future.
  • These companies have bonds with a credit rating in the range of ‘A+’ to ‘B-’.
  • This range is selected as a lot of these companies are classified as investment grade. However, they carry a significant credit risk. Therefore it is extremely important to take preemptive action against these companies and protect your investment.
  • The COVID 19 pandemic has caused massive stress in the economy. Businesses across segments have lost their revenue streams and are facing extreme liquidity tightening. They have limited cash flows and an ever-mounting debt.
  • Only a handful of mutual funds have taken a markdown for some of the bonds in the list.

INDmoney Recommendation:

Given the current high risk environment, invest only in debt funds that have a 100% allocation to AAA-rated papers and a low modified duration.