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Crisil spots recovery signals

Mumbai, Nov. 21: Leading rating agency Crisil today painted an optimistic scenario on the possible turnaround of the economy. “2002-03 may hold the promise of a change in economic direction,” the agency said in a press statement.

The improvement in some core sectors in the last six months has resulted in an improvement in Crisil’s credit ratios (ratio of upgrades to downgrades), the agency explained.

While the number of upgrades in its long-term ratings portfolio during 2001-02 and for the first half of 2002-03 both stood at four, the number of downgrades in the first half of 2002-03 was significantly lower at 10, compared with 38 during the whole of 2001-02.

“This improvement came despite the depressed economic trends and downward rating pressures witnessed during 2001-02 and lingering concerns about the weak monsoon during the current year”. However, striking a cautious balance, Crisil said the ratio is still less than one as downgrades continue to outnumber upgrades and therefore it would appear that any strong economic recovery is still some distance away.

Roopa Kudva, executive director and chief rating officer of Crisil said, “The likelihood of this change in economic direction growing into a meaningful improvement in the state of the economy would be critically dependent on the growth in investment activity.”

The modified credit ratio for Crisil’s FD ratings also improved during the first half of the current year to 0.98 as against 0.92 a year ago and 0.89 for the whole of 2001-02.

This may indicate that the sign of improvement in systemic credit quality observed in 1999-2000, but which retracted in 2001-02, is re-emerging, Crisil said. The agency said the improving credit quality was in step with underlying economic fundamentals.

Crisil’s modified credit ratio continues to exhibit a strong correlation with macro-economic indicators such as the growth rates of the index of industrial production and gross domestic product, the real interest rate and the aggregate quantum of equity mobilised by corporate.

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