How do you see the impact of the 3rd wave of Covid? Has Crisil revised any forecasts?
If you see how the Omicron wave happened in South Africa, there was a quick rise in infections and then a quick peak-out. If that’s what happens in India, we will see limited impact compared with the delta variant. To be sure, the contact-based services sector will be affected relatively more because people will cut down on travel and there will be fewer public events. Our forecast for India’s GDP growth this fiscal is 9.5%. We expect some adverse impact in the fourth quarter due to Omicron and high-base effect. For the next fiscal, we are projecting a GDP growth of 7.8%. We expect the services sector to pick up decisively, leading to broad-based growth.
Markets have been resilient despite the 3rd wave… Is it just liquidity that is driving values?
I feel a couple of things have been playing out. The first, of course, is easy liquidity. The second is that through the pandemic, marketshares have consolidated. Smaller companies have lost out due to supply chain disruptions, funding issues, and lack of business-continuity plans. Another interesting aspect is that consumers seem to be focusing more on quality and reliability than price. That is why you see the top two or three companies in each sector doing well.
As the CEO, What are your priorities at Crisil?
If you look back, we have grown both, organically and inorganically over the past decades. Sustainable growth remains our clarion call. As for priorities, I would like to flag three: Continuing to attract and retain top-draw talent; being future-ready; and, leveraging our institutional capability and data to deliver actionable intelligence to our clients. The other important priority is cyber risk.
Sebi requires rating agencies to track IPO end-use. How do you see this role?
Yes, this is a new area for us. It’s something that banks and financial institutions (FIs) have done earlier. I feel this shows the regulator’s confidence in the ability of rating agencies to carry out such a critical activity. We are working on our systems and processes to deliver this effectively.
Are companies more sensitive to downgrades because of the insolvency process?
That’s a great question, and I think it’s fair to surmise that the Insolvency and Bankruptcy Code (IBC) has established a deterrent — that promoters can even lose their indebted companies if they remain in default. This has improved credit discipline, and we see more intent towards timely servicing of debt. When the pandemic began, there was talk about how things would go downhill for businesses. But timely interventions by the government and the RBI, lenders and corporates themselves have mitigated a lot of the impact.
Additionally, many companies have used cash flows to pare debt. So one can say companies have become more sensitive to default because the credit ecosystem is now far more stringent on defaulters. This should help deepen India’s corporate bond market where high priority is accorded to credit discipline.
On a separate note, issuers and borrowers in general tend to be sensitive to non-default downgrades. But mature organisations appreciate that downgrades only reflect the relative weakness in their ability to service debt in a timely manner.
What are the emerging trends you see in the corporate sector?
Since the pandemic began, companies have been investing to create robust and diversified supply chains, accelerating digitalisation on the customer-experience side, and automating processes. The ongoing data explosion is also leading to greater demand for AI and machine language-based solutions.
I am also seeing sustainability rapidly becoming an important agenda for corporates. Banks and FIs are integrating environmental, social and governance (ESG) factors into their risk frameworks for investment and lending decisions.
How do you see the push towards sustainability playing out?
After investors and climate activists, consumers are also increasingly raising sustainability issues. They say it is not enough that a company has good products. They want companies to adopt responsible practices such as ESG. However, the biggest challenge in India is availability of relevant information.
Globally, regulators are working towards improving corporate disclosure norms. At Crisil, we are focusing on sustainability stewardship and availability of independent evaluation, benchmarks and data. Last year, we launched ESG scores for 225 large, listed Indian companies. We aim to extend our coverage beyond 1,000 companies. For the global markets, we work with top FIs on ESG integration through bespoke research and analytics. We have committed significant investments to be future-ready and grow sustainably.