New MD & CEO of Crisil Amish Mehta has explained in an interview how the agency has retained growth numbers in the economy that is braving the Covid-19 pandemic. On the question of whether the agency revised its forecasts based on the impact of the third wave of Covid, he said, “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,” Mehta said the contact-based services sector in the economy would be affected relatively more because people would otherwise reduce travel and there would 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 the 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,” the Crisil head said.
Is liquidity driving values, making the market resilient in this economy? “I feel a couple of things have been playing out,” Mehta says, “The first, of course, is easy liquidity. The second is that through the pandemic, market shares 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.”
The Times of India asked him about his priorities at Crisil, to which he said, “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.”
On Sebi’s requirement that rating agencies track IPO end-use, Mehta agreed this was a “new area for us”. But he takes heart from the fact 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,” Mehta said.
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,” the Crisil MD and CEO said.
“This has improved,” he said, “credit discipline. “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,” Mehta noted.
Moreover, “many companies have used cash flows to pare debt,” Mehta said, “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,” the Crisil head said.
Talking of the emerging trends he sees in the corporate sector, Mehta said, “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,” the Crisil MD and CEO said.
How does he 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 the availability of relevant information,” Mehta said.
“Globally, regulators are working towards improving corporate disclosure norms,” the Crisil head observed, “At Crisil, we are focusing on sustainability stewardship and the 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.”
Rating services pioneer Crisil, which transitioned into a global analytics company, now derives just 15% of its business from credit ratings. Mehta until September 2021 had led the company’s acquisition and change agenda as president and COO.