While the investment scenario is likely to remain subdued this fiscal year, corporate earnings may improve in the coming quarters as demand picks up, said Ashu Suyash, MD at CRISIL. Measures like easing monetary policy, expected large spends on infrastructure, GST collections should yield results in medium to long term as compliance improves. Edited excerpts from an interview with Saikat Das.What actually led to a slowdown in the economy?Critical policy measures such as demonetisation, GST implementation, tighter norms on banks to recognise and provide for bad assets, though pursued with good intent, brought about a correction in the growth path. Moreover, slowing global growth, falling trade intensity and uncertainties stemming from trade conflict also contributed to the slowdown.Which is the worst affected sector?The MSME (Micro, Small and Medium Enterprises) segment has been affected most adversely. The MSME segment contributes about 45% to manufacturing output, more than 40% of exports over 28% of the GDP while creating employment for over 11 crore people. This segment was predominantly dependent on cash economy and transition to the mainstream economy has been a slow process.Do you see any specks of revival?An easing monetary policy, improved transmission of rate cuts, expected large spends on infrastructure and the government’s minimum income support scheme for farmers would feed into consumption. The recentlyannounced steps by the finance minister will also address some pain points and support sentiment.Will such measures help corporate earnings?Consumption will improve gradually and the investment scenario is likely to remain subdued this fiscal. With all those measures, we hope the organised sector will report improvements in earnings but consumption is key for any revival in the economy. It is important for the MSME and unorganised sector to recover as well. What needs to be done for long-term infrastructure financing?The credit guarantee fund or different forms of credit enhancement by the government will help bring in investment to the infrastructure sector. The government will have to lead with investing on the infrastructure side. For this, the government will need to create fiscal space by restructuring expenditure and boosting revenue. Additionally, it will be critical to bring back private sector participation.There is a fear psychosis among investors. Are you factoring it in your rating methodologies?Taking in sentiment compromises the fundamentals of ratings. We do take market movement into account and early warning indicators are built into our ratings process. It is important to understand that the ratings given by two firms are not the same. This stems from the underlying methodology, rigour, best practices, thought leadership and pedigree. To say that AAA from CRISIL and AAA from another rating agency are the same is an issue. We are extremely heartened to see that there is an increased flight to quality and recognition of the standards of excellence we have pursued for three decades in this industry.What needs to be done to stop “Rating Shopping”?What investors need to understand is that every rating agency is not the same. An issuer can aim for triple-A rating and for that it can hop from one rating company to the other. But, to maintain such top rating grade is an equally tough task. If an issuer fails to do so, “Rating Shopping” backfires! So, if a rating company is doing its job right, you will see its default ratings would be lower.The awareness of these simple facts is more powerful than regulation.So, what is your suggestion to investors?Investors must have a fiduciary responsibility. Increased punitive action for not fulfilling this responsibility will result in increased vigilance and adherence to standards. Increased due diligence will always help because all ratings are not equal and that is a stark reality. Standards must be followed across all agencies. Secondly, investors must look closely at fact sheets. SEBI now mandates that the lower ratings received from a particular rating agency should also be published. Thirdly, rating criteria have to be kept current. Rating is not a one-time process and must be surveyed for the life of the corporation and instrument.In the current environment, what are business opportunities for CRISIL?Greater awareness of the quality of ratings and demand for higher standards definitely mean good positive business opportunity for CRISIL. Commercial and analytical independence is central to how we structure our business. We ensure that our teams are incentivised for the highest rating accuracy. We have also established a vast global research business across all asset classes, risk analytics and benchmarking analytics through our acquisition of Coalition, which has been a market leader internationally.
from Economic Times https://ift.tt/2XNowIn
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