Page 125 - ES 2020-21_Volume-1-2 [28-01-21]

108 Economic Survey 2020-21 Volume 1

Summary of Average Changes in Select Indicators during Credit Ratings Down-
grades

3.39 Table 2 summarises the average changes observed in selected indicators during and after
episodes of sovereign ratings downgrades between 1998-2018. It may be seen that ratings
downgrade, on average, do not appear to have strong negative correlation with Sensex return
and exchange rate (INR/USD) in the short, medium and long term. G-Sec yields and spread,
on average, do not appear to be negatively correlated with ratings downgrades in the medium
term. Rating downgrades, on average, appear to have a negative correlation with FPI (Equity
and Debt) in the long term.

Table 2: Summary of Average Changes in Select Indicators
during India’s Sovereign Credit Rating Downgrades (1998-2018)

Indicator During/Post event Short Term Medium Term Long Term
Sensex return During event -1.14% -3.73% 34%
Post event 0.38% 0.5% 26%
Exchange Rate During event -0.01% 1.3% 9%
Post event -0.01% 0.2% 2%
G Sec Yield 5 yr 10 Spread 5 yr 10 yr Spread 5 yr 10 Spread
yr yr
During event - - - -1.4% -3.3% -22% - - -
Post event - - - 0.1% -0.3% 1% - - -
FPI Flows Equity Debt Equity Debt Equity Debt
During event - - - - -67% -289%
Post event - - - - -759% -114%
Note: Green indicates positive economic outcome, Red indicates negative economic outcome

Effect of India’s Sovereign Credit Rating Upgrades

3.40 Table 3 summarises the average changes in select indicators during and after India’s
sovereign credit ratings upgrade between 1998-2018. In the short run, during India’s sovereign
credit rating upgrades, Sensex return on average fell by around 0.7 per cent over the previous
day, and grew at 0.2 per cent over the next two weeks. Exchange rate (INR/USD), on average,
appreciated by around 0.05 per cent over the previous day during the rating upgrade, and
appreciated by 0.03 per cent over the next two weeks.

3.41 Over the medium term, during India’s sovereign credit ratings upgrade, Sensex return on
average rose by around two per cent over the previous month and grew at an average rate of 1.8
per cent over the next six months. Exchange rate (INR/USD), on average, appreciated by around
0.3 per cent over the previous month during the rating upgrade, and appreciated by 0.4 per cent
over the next 6 months. During ratings upgrade, yield on G-Sec (5 year), on average, increased
by 0.2 per cent over the previous month, and grew at 0.6 per cent over the next six months. Yield
on G-Sec (10 year), on average, fell by 0.5 per cent over the previous month, and grew at an
average rate of 0.7 per cent over the next six months. Spread (RHS), on average, declined by
five per cent over the previous month, and grew at an average rate of five per cent over the next
six months (Table 3).