The markets may be exuding a lot of optimism, but the actions of rating agencies last month show that improvement in company balance sheets is some distance away.
Credit Market Academy, which aims to provide and promote information in the loan markets, says in its newsletter Credit Streetthat there were two rating upgrades in February and 111 ratings were reaffirmed, while the number of downgrades was 61.
While downgraded companies belonged primarily to industries such as engineering/manufacturing, construction/real estate development, auto and textiles, the two upgrades were of Dena Bank (tier II bonds) and United Phosphorus Ltd (non-convertible debentures).
The downgrade/upgrade ratio for March was therefore 30.5.
These figures include ratings from Crisil, Icra, CARE, Fitch and Brickworks.
In February, the numbers were four upgrades, 47 reaffirmations and 77 downgrades, which means that there was some deterioration in the ratings downgrades to upgrades ratio in March.
Just to put that in perspective, the global downgrade/upgrade ratio for calendar year 2008 was 2.05 times for S&P and 3.05 times for Fitch.
In fiscal year 2008-09, Crisil downgraded 84 while upgrading two, so the downgrade/upgrade ratio was a staggering 42 times.
Rating actions are a lagging indicator, since rating agencies use historical data to arrive at their decisions. The most important thing to watch out for in the March corporate results will be signs of deterioration in balance sheets.
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