{"id":1367,"date":"2020-06-09T17:14:01","date_gmt":"2020-06-09T11:44:01","guid":{"rendered":"https:\/\/blog.tickertape.in\/?p=1367"},"modified":"2021-03-24T16:23:50","modified_gmt":"2021-03-24T10:53:50","slug":"moodys-india-rating-downgrade-and-more","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/moodys-india-rating-downgrade-and-more\/","title":{"rendered":"This is why Moody&#8217;s India rating was downgraded"},"content":{"rendered":"\n<p>On 1st Jun 2020, Moody\u2019s Investors Services, a global credit rating company downgraded India\u2019s sovereign rating to Baa3. Previously, Moody\u2019s had upgraded the rating in Nov 2017 from Baa3 to \u201cBaa2\u201d with \u201cstable\u201d outlook. What do these terms mean? Here\u2019s all you need to know about Moody\u2019s credit rating.<\/p>\n\n\n\n<p><strong>The article covers<\/strong><\/p>\n\n\n\n<p><a href=\"#Moodys\">Introduction to Moody\u2019s<\/a><\/p>\n\n\n\n<p><a href=\"#Ratings\">Moody&#8217;s and its ratings<\/a><\/p>\n\n\n\n<p><a href=\"#Rate-what\">What does Moody\u2019s rate?<\/a><\/p>\n\n\n\n<p><a href=\"#Credit\">Moody&#8217;s credit ratings<\/a><\/p>\n\n\n\n<p><a href=\"#Help\">How does Moody\u2019s rating help investors?<\/a><\/p>\n\n\n\n<p><a href=\"#Why\">Why the downgrade in Moody\u2019s India\u2019s rating?<\/a><\/p>\n\n\n\n<p><a href=\"#Baa3\">What does Baa3 signify?<\/a><\/p>\n\n\n\n<p><a href=\"#Reasons\">Reasons for downgrade in Moody\u2019s India rating<\/a><\/p>\n\n\n\n<p><a href=\"#Outlook\">What does negative outlook tell about India?&nbsp;<\/a><\/p>\n\n\n\n<p><a href=\"#Upgrade\">Is an upgrade in Moody&#8217;s India rating likely soon?<\/a><\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/moodys-india-rating-downgrade-and-more\/#Introduction-to-Moodys\" title=\"Introduction to Moody\u2019s\">Introduction to Moody\u2019s<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/moodys-india-rating-downgrade-and-more\/#Moodys-Investors-Service-and-its-ratings\" title=\"Moody\u2019s Investors Service and its ratings\">Moody\u2019s Investors Service and its ratings<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/moodys-india-rating-downgrade-and-more\/#What-does-Moodys-Investors-Service-rate\" title=\"What does Moody\u2019s Investors Service rate?\">What does Moody\u2019s Investors Service rate?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/moodys-india-rating-downgrade-and-more\/#Moodys-credit-ratings\" title=\"Moody&#8217;s credit ratings\">Moody&#8217;s credit ratings<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/moodys-india-rating-downgrade-and-more\/#Investment-grade\" title=\"Investment grade\">Investment grade<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/moodys-india-rating-downgrade-and-more\/#Speculative-grade\" title=\"Speculative grade\">Speculative grade<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tickertape.in\/blog\/moodys-india-rating-downgrade-and-more\/#How-does-Moodys-rating-help-investors\" title=\"How does Moody&#8217;s rating help investors?\">How does Moody&#8217;s rating help investors?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.tickertape.in\/blog\/moodys-india-rating-downgrade-and-more\/#Why-the-downgrade-in-Moodys-India-rating\" title=\"Why the downgrade in Moody&#8217;s India rating?\">Why the downgrade in Moody&#8217;s India rating?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.tickertape.in\/blog\/moodys-india-rating-downgrade-and-more\/#What-does-Moodys-India-rating-Baa3-signify\" title=\"What does Moody&#8217;s India rating Baa3 signify?\">What does Moody&#8217;s India rating Baa3 signify?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.tickertape.in\/blog\/moodys-india-rating-downgrade-and-more\/#Reasons-for-downgrade-in-Moodys-India-rating\" title=\"Reasons for downgrade in Moody\u2019s India rating\">Reasons for downgrade in Moody\u2019s India rating<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.tickertape.in\/blog\/moodys-india-rating-downgrade-and-more\/#What-does-negative-outlook-tell-about-India\" title=\"What does negative outlook tell about India?&nbsp;\">What does negative outlook tell about India?&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.tickertape.in\/blog\/moodys-india-rating-downgrade-and-more\/#Is-an-upgrade-in-Moodys-India-rating-likely-soon\" title=\"Is an upgrade in Moody&#8217;s India rating likely soon?\">Is an upgrade in Moody&#8217;s India rating likely soon?<\/a><\/li><\/ul><\/nav><\/div>\n<h3 class=\"Moodys wp-block-heading\" id=\"Moodys\"><span class=\"ez-toc-section\" id=\"Introduction-to-Moodys\"><\/span><strong>Introduction to Moody\u2019s<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>When a lender offers a loan, they expect it back, in full and on time. So, before approving a loan, they check the borrowers\u2019 <a href=\"https:\/\/www.tickertape.in\/blog\/get-an-instant-loan-without-credit-score\/\">credit score<\/a> and report to gauge their willingness and ability to repay the loan. If the individual has a good credit score and clean credit history, the lender happily sanctions a loan. If not, they reject it or may offer unfavourable terms of the loan.<\/p>\n\n\n\n<p>You see how credit score helps lenders dodge the risk of default on a loan? Similarly, governments and corporates also get credit ratings from rating agencies such as Moody\u2019s.<\/p>\n\n\n\n<h3 class=\"Ratings wp-block-heading\" id=\"Ratings\"><span class=\"ez-toc-section\" id=\"Moodys-Investors-Service-and-its-ratings\"><\/span><strong>Moody\u2019s Investors Service<\/strong><strong> and its ratings<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Moody&#8217;s aka Moody\u2019s Investors Service is one of the global Big Three credit rating agencies, Standard &amp; Poor&#8217;s and Fitch Group being the other two. As a credit rating agency, Moody&#8217;s ranks the creditworthiness or credit health of the issuers of financial instruments or borrowers.<\/p>\n\n\n\n<p>Creditworthiness suggests the ability of an organisation or individual to repay the funds that it borrows. It is ascertained based on the borrower\u2019s credit behaviour in the past. Moody\u2019s ranks borrowers based on a standardised rating scale that measures the extent to which the borrower may default on repayment and so the investor or lender or subscriber to the instrument may lose their capital in such cases.<\/p>\n\n\n\n<p>Additionally, Moody\u2019s also monitors the activities of the concerned party regularly so as to change its rating if viable. In a way, Moody&#8217;s offers investors financial research on the securities issued by government and commercial entities.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Rate-what\"><span class=\"ez-toc-section\" id=\"What-does-Moodys-Investors-Service-rate\"><\/span><strong>What does <\/strong><strong>Moody\u2019s Investors Service<\/strong><strong> rate?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>1.\tDebt securities issued by government, municipal, and corporates<\/p>\n\n\n\n<p>2.\tMoney market funds<\/p>\n\n\n\n<p>3.\tFixed income funds<\/p>\n\n\n\n<p>4.\tBanks and NBFCs<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Credit\"><span class=\"ez-toc-section\" id=\"Moodys-credit-ratings\"><\/span><strong>Moody&#8217;s credit ratings<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>As mentioned before, Moody&#8217;s rates securities based on a standardised rating scale that ranges from Aaa to C. While Aaa is the highest rating, C is the lowest.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Investment-grade\"><\/span><strong>Investment grade<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"657\" height=\"566\" src=\"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2020\/06\/Screenshot-2020-06-09-at-16.57.18.png\" alt=\"\" class=\"wp-image-1373\" srcset=\"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2020\/06\/Screenshot-2020-06-09-at-16.57.18.png 657w, https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2020\/06\/Screenshot-2020-06-09-at-16.57.18-300x258.png 300w\" sizes=\"(max-width: 657px) 100vw, 657px\" \/><figcaption><em>Source:<\/em> <a href=\"https:\/\/www.timesnownews.com\/business-economy\/economy\/article\/moodys-downgrades-india-rating-for-first-time-in-22-years-all-you-need-to-know-about-moodys-rating\/600749\" target=\"_blank\" rel=\"noreferrer noopener nofollow\" aria-label=\"Times Now News (opens in a new tab)\">Times Now News<\/a>  <\/figcaption><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Speculative-grade\"><\/span><strong>Speculative grade<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"705\" height=\"599\" src=\"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2020\/06\/Screenshot-2020-06-09-at-17.00.20.png\" alt=\"\" class=\"wp-image-1374\" srcset=\"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2020\/06\/Screenshot-2020-06-09-at-17.00.20.png 705w, https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2020\/06\/Screenshot-2020-06-09-at-17.00.20-300x255.png 300w\" sizes=\"(max-width: 705px) 100vw, 705px\" \/><figcaption><em>Source: <\/em><a rel=\"noreferrer noopener nofollow\" href=\"https:\/\/www.timesnownews.com\/business-economy\/economy\/article\/moodys-downgrades-india-rating-for-first-time-in-22-years-all-you-need-to-know-about-moodys-rating\/600749\" target=\"_blank\">Times Now News<\/a><em>  <\/em><\/figcaption><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Help\"><span class=\"ez-toc-section\" id=\"How-does-Moodys-rating-help-investors\"><\/span><strong>How does <\/strong><strong>Moody&#8217;s rating<\/strong><strong> help investors?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Since Moody&#8217;s rating is based on comprehensive financial analysis of the concerned party, it helps investors and market participants to assess the risk involved in investing in securities.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Why\"><span class=\"ez-toc-section\" id=\"Why-the-downgrade-in-Moodys-India-rating\"><\/span><strong>Why the downgrade in <\/strong><strong>Moody&#8217;s India ratin<\/strong>g<strong>?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Though Moody\u2019s downgraded India\u2019s rating during the coronavirus pandemic, the move itself was not triggered by the impact of COVID-19. In contrast, Moody\u2019s downgraded India\u2019s rating mainly because of the prolonged low growth of the economy compared to the country\u2019s debt affordability.<\/p>\n\n\n\n<p>In addition to India\u2019s debt security, Moody\u2019s has also downgraded:<\/p>\n\n\n\n<ul><li>The country\u2019s local-currency senior unsecured rating to Baa3<\/li><li>The country\u2019s short-term local-currency rating from to P-3<\/li><\/ul>\n\n\n\n<h3 class=\"Baa3 wp-block-heading\" id=\"Baa3\"><span class=\"ez-toc-section\" id=\"What-does-Moodys-India-rating-Baa3-signify\"><\/span><strong>What does <\/strong><strong>Moody&#8217;s India rating<\/strong><strong> Baa3 signify?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>&#8216;Baa3&#8217; is a level above \u2018junk\u2019, meaning India\u2019s debt securities are still investment-worthy. The rating reflects Moody\u2019s opinion that India\u2019s chances of non-repayment of funds that it has borrowed have increased. The risk of non-repayment discourages foreign investors from investing in India and thus drive away funds we could use for development purposes. Besides, a higher risk also means that Indian governments and corporates would now have to pay a higher rate of interest to acquire funds.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Reasons\"><span class=\"ez-toc-section\" id=\"Reasons-for-downgrade-in-Moodys-India-rating\"><\/span><strong>Reasons for downgrade in Moody\u2019s India rating<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Moody\u2019s Investors Service cited the following factors for the downgrade in India\u2019s rating:<\/p>\n\n\n\n<ul><li>Ineffective implementation of economic reforms since 2017<\/li><li>Prolonged economic slowdown<\/li><li>Significant deterioration in state and central governments\u2019 fiscal position<\/li><li>Stress in the financial sector and high debt burden<\/li><\/ul>\n\n\n\n<p>Notably, India\u2019s fiscal deficit for FY 19-20 widened to 4.59% of GDP from the targeted 3.8%, meaning our debt burden actually surpassed the projection. To add to it, loans offered as part of the Rs 20 lakh crore economic package can also pose a threat to the financial sector if they turn bad.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Outlook\"><span class=\"ez-toc-section\" id=\"What-does-negative-outlook-tell-about-India\"><\/span><strong>What does negative outlook tell about India?<\/strong>&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Moody\u2019s had changed its India outlook from \u201cstable\u201d to \u201cnegative\u201d in Nov 2019 for the same reasons for downgrade in rating, which are discussed later. Since Moody\u2019s didn\u2019t see significant developments, it maintained India outlook of \u201cnegative\u201d. A \u201cnegative\u201d outlook reflects Moody\u2019s opinion that the current risks in the economy and financial system could get worse in the coming days. It also tells that there may be another downgrade on the cards.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Upgrade\"><span class=\"ez-toc-section\" id=\"Is-an-upgrade-in-Moodys-India-rating-likely-soon\"><\/span><strong>Is an upgrade in Moody&#8217;s India rating likely soon?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Well, Moody\u2019s Investors Service revealed that an upgrade back to stable is unlikely, and only it will only be considered if effective policy implementation pushes the GDP rate higher than projected.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>On June 1, 2020, Moody\u2019s India rating was downgraded to &#8216;Baa3&#8217; and the outlook was maintained to &#8216;negative&#8217;. Read why and if an upgrade is likely<\/p>\n","protected":false},"author":27,"featured_media":1378,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[10,1744],"tags":[],"acf":[],"modified_by":"Manonmayi","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2020\/06\/Moodys.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/1367"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/27"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=1367"}],"version-history":[{"count":9,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/1367\/revisions"}],"predecessor-version":[{"id":1384,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/1367\/revisions\/1384"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/1378"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=1367"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=1367"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=1367"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}