Crisil sees rise in rating upgrades

If the number of rating upgrades is anything to go by, the economy is experiencing a turnaround. A recent study by Crisil points out improve...

If the number of rating upgrades is anything to go by, the economy is experiencing a turnaround. A recent study by Crisil points out improvements in some core sectors in the first half of the fiscal 2002-03.

‘‘While the number of upgrades in Crisil’s long-term ratings portfolio during 2001-02 and for the first half of 2002-03 both equaled four, the number of downgrades during the first half of 2002-03 was significantly lower at 10 as compared to 38 during the whole of 2001-02,’’ the report says, adding: ‘This sign of improvement was despite the depressed economic trends and downward rating pressures witnessed during the fiscal 2001-02 and lingering concerns about the weak monsoon during the current year’.

Going by its rating experiences, Crisil says in its report, ‘the first half of the fiscal 2002-03 may hold the promise of a change in economic direction. Improvement in some core sectors during the period has resulted in an improvement in Crisil’s credit ratios (ratio of upgrades to downgrades). Pertinent to note here is that, in the first half of the fiscal, index of industrial production (IIP) rose by 6.4 per cent.’

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Says Crisil’s executive director and chief rating officer Roopa Kudva: “The likelihood of this change in economic direction growing into a meaningful improvement in the state of the economy would be critically dependent on the growth in investment activity.”

The modified credit ratio, which is defined as the ratio of ‘upgrades plus reaffirmations’ to ‘downgrades plus reaffirmations’, is an effective indicator of systemic credit quality. Crisil’s modified credit ratio for long-term ratings improved to 0.95 in the first half of 2002-03 as compared to 0.87 in the first half of fiscal 2001-02 and 0.85 for the whole of fiscal.

Similarly, the modified credit ratio for Crisil’s fixed deposits ratings improved during the current fiscal’s first half to 0.98 as against 0.92 in the corresponding period last year and against 0.89 for the whole of previous fiscal. This may indicate that the sign of improvement in systemic credit quality, which was observed in the fiscal 1999-2000, but which retracted in 2001-02, is reemerging, the report says.

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