S&P Raises India's Debt Rating to Investment Grade
By Cherian Thomas
Jan. 30 (Bloomberg) -- Standard & Poor's raised India's debt rating for the first time in 14 years to investment grade on the strength of record growth and foreign exchange reserves.
S&P said it has a stable outlook on India's local and foreign currency debt and raised it by one notch to BBB-,the lowest investment grade, from BB+, assigned since December 1992.
"The upgrade reflects the country's strong economic prospects and external balance sheet,'' the rating company said in an e-mailed statement today from Singapore. It "supports a weak, but improving, fiscal position.''
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Posted: 30/Jan/2007 at 2:00pm
While our anchors will not discuss this upgrade in ratings these news clippings have major long term ramifications. Many funds follow the S&P ratings chart to allocate capital and that new money could be at the corner - waiting to come.
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Posted: 30/Jan/2007 at 4:48pm
Mostly big funds buy big stocks.
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What does this mean for India and its financial markets?
India has always been viewed by foreign investors as investment grade, considering the spreads given to Indian corporate debt issued and traded abroad are on a par with other or even better than other investment-grade issuers.
However, many investors look at the lower of the ratings of any paper before considering an investment.
The upgrade is more beneficial to Indian corporates and institutions who are constrained by the sovereign rating - for they can’t be rated above the sovereign.
The main beneficiaries here would be AAA-rated entities such as State Bank of India, ICICI Bank, Reliance Industries, HDFC and others, who borrow actively outside the country.
The banking sector as a whole is a beneficiary as funds would be cheaper and more easily available.
The rupee is set to gain against the US dollar on the upgrade as expectations of foreign flows into the country will boost the currency.
The rating upgrade is sentiment positive for stock markets as the markets will factor in expectations of further flows.
However it is a headache for the Reserve Bank of India (RBI) as it is grappling with inflationary trends brought about by high money supply growth and high credit growth.
Life can only be understood backwards—but it must be lived forwards
It does not appear that NW18 is going to list today. I still dont see any notices to either BSE or NSE, and icicidirect still shows the the share as "NA" without assigning a code to it. So i dont think its happening today!
On a totally different note, check out this piece of news:
India bowls S&P over after 16 years
Global ratings agency Standard & Poor's has
raised India's sovereign credit rating to investment grade after a gap
of nearly 16 years.
Analysts said the move would hugely expand the overseas investor base for Indian loan and debt issues.
S&P
said it had raised sovereign credit ratings on India to 'BBB-/A-3' with
a stable outlook from 'BB+/B,' which reflected the country's strong
economic prospects and external balance sheet, as also its deep capital
market, which supported a weak but improving fiscal position.
The
ratings reflected the growing strength of India's macro-economic
stability, Finance Minister P Chidambaram told media persons on
Tuesday.
S&P is the third global ratings agency to upgrade
India. Fitch Ratings upgraded India to investment grade in August 2006
and Moody's in January 2004.
S&P had downgraded India to
sub-investment grade in March 1991, when the country faced a foreign
exchange crisis. Now, the country's foreign-exchange reserves of
$178.12 billion are more than 16 times the short-term debt and five
times the gross financing requirements, providing a buffer from changes
in external and domestic investor confidence.
The revision in
rating to investment grade will enable a large number of investors with
huge investible funds to take an India exposure. Many overseas pension
and insurance funds have kept away from investing in issues by Indian
companies because of the country's sub-investment grade ratings. Indian
companies and banks raised $26.74 billion through loans and debt issues
overseas in 2006.
"This is a momentous occasion," said Madan
Menon, co-CEO at Barclays India, which has helped a large number of
companies raise funds overseas in the last few years.
Describing
the upgrade as "adding sheen to India's growth story," Siddhartha Roy,
chief economist of the Tata Group, said the cost of overseas borrowing
by Indian companies would come down marginally.
Chanda Kochhar,
joint managing director, ICICI Bank, said the upgrade would make some
difference in terms of pricing and attracting an additional pool of
investors but warned that ratings on India would be pressured by the
country's weak fiscal profile.
However, Standard & Poor's
credit analyst Ping Chew said, "Gradual reforms and consistent monetary
and fiscal policy stances have also sustained macroeconomic stability."
This
has led to strong growth prospects and attracted foreign and
non-resident Indian capital. India's strong institutions have also
provided for relative stability in policy, politics, and business
environments against volatility usually associated with lower income
levels."
Back in the 1970s and 1980s, the Murugappa group in Chennai tried to introduce the best management practices picked up from its British collaborator in a cycle-manufacturing venture. But it found that the home-grown Hero group in distant Ludhiana was running rings round it. Looking back, Murugappa’s retired chairman, MV Subbiah, thinks the difference was made by Hero following a business style that was more rooted in Indian culture (outsourcing to smaller family enterprises and doing only the final assembly, rather than centralising production in a top-down control environment and seeking economies of scale, as the British partners were advising Murugappa to do). Subbiah argues that if Indian companies do not understand the roots of India’s culture and genius, they will not succeed despite all the hoopla over 9 per cent GDP growth.
Why have we succeeded in software and pharma research, he asks, and gives the answer: Because in both areas, people can work on their own, figuring out algorithms or molecular structures. The negative conclusion: Indians don’t work well in teams. Making a leap from contemporary business to psychology, Subbiah argues that the Vedic culture developed along the hierarchy of needs defined by Abraham Maslow: the lower levels of need (physiological and safety—like food and shelter) were easily met in the fertile Gangetic plain, so people focused on the highest level of need: self-actualisation. Hence Indians’ natural inclination to want to figure things out for themselves rather than simply take instructions, to argue a point, and to have different opinions. In other words, regimentation will not work, you have to provide room for creativity and tolerate the hurly-burly of a raucous democracy.
In some ways, Subbiah is echoing a point made by the leaders of many global corporations: when it comes to repeat jobs to be done with monotonous regularity on a massive scale, it is hard to beat the Chinese worker for robotic efficiency. But when it comes to applying some thought and turning out engineered products on the factory floor, the Indian worker is superior. Subbiah points out that even companies within the same TVS group that have won the prestigious Deming quality prize (Suresh Krishna’s Sundaram Clayton and Venu Srinivasan’s TVS Motors) have followed different styles of management, under different Japanese gurus. We have to organise our businesses in line with our own genius, not follow western concepts of management and organisation that may be alien to our cultural orientation, he says.
Subbiah, who in his retirement has worked on how family groups in business should manage their affairs, and taught at Northwestern University’s Kellogg School of Management in Illinois, extends the argument to politics. He asks why most western democracies become two-party systems, while in India every party splinters. It is the same reason, he says, why most business families split, while western business families stay together in the business for many generations. Subordinating your interests to the group’s does not come naturally to us, he suggests. Nor, he argues, do people plan for their succession. “Have you wondered why we don’t build institutions?”—defining an institution as one that remains focused on its core purpose and organising principles through at least three generations of leadership.
If this sounds like a list of negatives, Subbiah also thinks that the west is adopting some Indian concepts. The idea of situational leadership that is now advocated (you chose the leader for a specific function, rather than have the same leader for all functions) is borrowed from the Mahabharata, for instance. And when it comes to the practice of statecraft, he quotes Chanakya’s prescription of the techniques to use in diplomacy: saam, daam, dund, bhed (persuade, bribe, punish, intrigue). “Deceipt and intrigue are advocated in our culture.”
I ask whether he thinks he has the “theory of everything” for Indian business practice, but he shies away from the claim, arguing that he is not an academic but an observer. And it is true that what Subbiah says (over an informal lunch) is more a loose formulation than a rigorous exposition. Nevertheless, it does leave you thinking.
Life can only be understood backwards—but it must be lived forwards
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