Page 122 - ES 2020-21_Volume-1-2 [28-01-21]

Does India’s Sovereign Credit Rating reflect its fundamentals No! 105

the previous month, and recovered to grow at 0.5 per cent over the next six months. Figure 34
(ii) shows that during ratings downgrade, exchange rate (INR/USD), on average, depreciated
by around one per cent over the previous month and depreciated by 0.2 per cent over the next
six months. Figure 34 (iii) shows that during ratings downgrade, yield on G-Sec (5 year), on
average, fell by 1.4 per cent over the previous month, and grew at 0.1 per cent over the next six
months. Yield on G-Sec (10 year), on average, fell by 3.3 per cent over the previous month, and
declined by 0.29 per cent over the next six months. Spread (RHS), on average, fell by 22 per
cent over the previous month, and grew at one per cent over the next six months.

Figure 34: Medium-Term Average Change in Select Indicators during
and after India’s Sovereign Credit Ratings Downgrade (1998-2018)
(i) Sensex Return

10%
8%
Change Over Previous Month -2%
6%
4%
2%
0%

-4%
-6%
-8% -3.73%
-10%
T-6 T-5 T-4 T-3 T-2 T-1 T T+1 T+2 T+3 T+4 T+5 T+6
Months
Note: 0 signifies month of change in credit ratings
Source: BSE and Survey calculations

(ii) Exchange Rate (INR/USD)

2.5%
2.0%
Change Over Previous Month 1.5% 1.3%

1.0%

0.5%
0.0%

-0.5%
T-6 T-5 T-4 T-3 T-2 T-1 T T+1 T+2 T+3 T+4 T+5 T+6
Months

Note: 0 signifies month of change in credit ratings
Source: RBI and Survey calculations