Page 123 - ES 2020-21_Volume-1-2 [28-01-21]

106 Economic Survey 2020-21 Volume 1

(iii) G-Sec Yield and Spread

8.0% 80%
6.0% 60%
Change Over Previous Month 2.0% 40% 5 Year
4.0%

20%
0.0%
10 Year
Spread (RHS)
0%
-2.0%
-3.3%
-4.0% -1.4% -20%
-22.2%
-6.0% -40%
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

Long-Term Effect of India’s Sovereign Credit Rating Downgrades
3.38 Figure 35 shows the correlations between a credit ratings downgrade and Sensex return,
exchange rate (INR/USD) and FPI (Equity and Debt) in the long term, averaged across
downgrade episodes from 1998-2018. It may be seen in Figure 35 (i) that during the year of
ratings downgrade, on average, Sensex return rose by around 34 per cent over the previous
year, and grew at 26 per cent the next year. Figure 35 (ii) shows that during the year of ratings
downgrade, on average, exchange rate (INR/USD) depreciated by around nine per cent over the
previous year, and depreciated by two per cent the next year. Figure 35 (iii) shows that during
the year of the rating downgrade, on average, FPI Equity fell by 67 per cent over the previous
year, and fell by 759 per cent in the next year. Average FPI Debt too followed a similar pattern,
declining by 289 per cent, on average, during the year of rating downgrades, and declining by
114 per cent in the next year.