Credit rating agencies may shine post GST
Mumbai: Credit rating agencies may see an increase in the number of issuers in the coming year with businesses transitioning from the unorganized to organized sector as a result of the Goods and Services Tax implementation by July.
Accreditation from rating agencies would reduce the cost of funds for Small and Medium Enterprises which borrow from banks and other financial institutions as a higher number of them will look to come under the formal system. The RBI's guidelines to rate risk exposures will also provide a further push to credit rating companies and analysts expect the number of rated SMEs to pick-up.
“RBI has made it mandatory for risk exposures to be rated and with more companies coming into the fray of the formal sector, it would be a positive for credit rating agencies,” said Aalok Shah, analyst at Centrum Broking.
Shares of CARE and ICRA have gained up to 7% in the last month and CARE has outperformed the Sensex by 45% in the last year. While the BSE Midcap in the past three years has given 103% returns, shares of CARE have given 114% returns in comparison and CARE has given 104% returns in the same period.
Though CRISIL continues to be the market leader in the sector, its shares have fallen 14% since the beginning of 2017. Headwinds in the global research business like Brexit, shrinking client budgets and restricted spending, coupled with weak credit off take in the manufacturing sector have led to fall in average realisations in the last few quarters, said analysts.
The valuations of CARE Ratings are not that expensive currently said analysts, “Shares of CARE currently trade at a discounted valuation to peer CRISIL and ICRA, and apart from the parentage we see no fundamental difference between their ratings business,” Shah of Centrum said.
Accreditation from rating agencies would reduce the cost of funds for Small and Medium Enterprises which borrow from banks and other financial institutions as a higher number of them will look to come under the formal system. The RBI's guidelines to rate risk exposures will also provide a further push to credit rating companies and analysts expect the number of rated SMEs to pick-up.
“RBI has made it mandatory for risk exposures to be rated and with more companies coming into the fray of the formal sector, it would be a positive for credit rating agencies,” said Aalok Shah, analyst at Centrum Broking.
Shares of CARE and ICRA have gained up to 7% in the last month and CARE has outperformed the Sensex by 45% in the last year. While the BSE Midcap in the past three years has given 103% returns, shares of CARE have given 114% returns in comparison and CARE has given 104% returns in the same period.
Though CRISIL continues to be the market leader in the sector, its shares have fallen 14% since the beginning of 2017. Headwinds in the global research business like Brexit, shrinking client budgets and restricted spending, coupled with weak credit off take in the manufacturing sector have led to fall in average realisations in the last few quarters, said analysts.
The valuations of CARE Ratings are not that expensive currently said analysts, “Shares of CARE currently trade at a discounted valuation to peer CRISIL and ICRA, and apart from the parentage we see no fundamental difference between their ratings business,” Shah of Centrum said.
