Page 104 - ES 2020-21_Volume-1-2 [28-01-21]

Does India’s Sovereign Credit Rating reflect its fundamentals No! 87

Table 1: India’s Sovereign Credit Rating (1998-2020)

Date S&P Moody’s Fitch
June 1998 Ba2*
October 1998 BB*
March 2000 BB+*
November 2001 BB*
February 2003 Ba1*
January 2004 BB+*
January 2004 Baa3
February 2005 BB+*
August 2006 BBB-
January 2007 BBB-
November 2017 Baa2
June 2020 Baa3
*Speculative Grade; Green highlights ratings upgrade; Red highlights ratings downgrade, Black indicates first rating
Source: Compiled from S&P Global, Fitch and Moody’s

Box 1: What are Sovereign Credit Ratings?

Sovereign credit ratings seek to quantify issuers’ ability to meet debt obligations. When favourable,
these can facilitate countries access to global capital markets and foreign investment. Table below
presents what three key CRAs – S&P, Moody’s and Fitch, seek to measure.

What Credit Ratings Measure

Fitch "Credit ratings express risk in relative rank order, which is to say they are ordinal
measures of credit risk and are not predictive of a specific frequency of default or loss.
Fitch Ratings' credit ratings do not directly address any risk other than credit risk, ratings
do not deal with the risk of a market value loss on a rated security due to changes in
interest rates, liquidity and other market considerations."

Moody's "There is an expectation that rating will, on average, relate to subsequent default frequency,
although they typically are not defined as precise default rate estimates. Moody's ratings
are therefore intended to convey opinions of the relative creditworthiness of issues and
obligations...Moody's rating process also involves forming views about the likelihood of
plausible scenarios, or outcomes—not forecasting them, but instead placing some weight
on their likely occurrence and on the potential credit consequences. Normal fluctuations
in economic activity are generally included in these scenarios, and by incorporating our
views about the likehood of such scenarios, we give our ratings relative stability over
economic cycles and a sense of horizon."
Standard "Standard & Poor's credit ratings are designed primarily to provide relative rankings
& Poor's among issues and obligations of overall creditworthiness; the ratings are not measures of
absolute default probability. Creditworthiness encompasses likehood of default and also
includes payment priority, recovery, and credit stability."
Source: IMF (2010)