CREDIT RATING AND ITS RELEVANCE TO EQUITY INVESTORS

Credit rating refers to the rating of the ability of a borrower to service its debt related

obligations. These ratings, which are provided by a credit rating agency, are issued at issuer level as well as at individual debt levels. Further, separate ratings are provided for short term and for long term.

Although credit rating pertains to debt, it is also of relevance to equity investors as a company can provide returns to equity investors only if the lenders are serviced first. Thus, credit rating provides an investor with the level of financial risk involved and can thus drive the return expectations of investors.

Further, going through the historical evolution of credit rating of the company can also provide perspectives on how the management reacts to external feedback. Typically, credit rating reports specify what are the factors that have led to the rating agency conclude on a particular rating. It also specifies what the rating agency considers as key concerns. If a company has worked on such concern areas, it indicates that the management of the company has been very responsive to external feedbacks. Reading through historical credit rating and how the concerns have changed (or otherwise) from one report to the next can provide the information for obtaining such insights.

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THESIS ON CENTRAL DEPOSITORY SERVICES (INDIA) LIMITED (CDSL)

Central Depository Services (India) Limited (CDSL) is very good stock to hold for long-term investors and I am presenting a thesis on it which is as follows: · Its fundamentals are very strong and impressive which can be understood from the following points: Ø It is a debt free company. Ø It has delivered a good profit growth of 24.10% CAGR over last 5 years. Ø It has been maintaining a healthy dividend payout ratio of 42.69%. Ø It has a healthy Cash from Operations. Ø It has a healthy ROE and ROCE of more than 20%. Ø It has a very healthy Operating and PAT Margins of 75.51% and 58.55% respectively as per the financials of F.Y. 2020-21. · The penetration to equity markets in India is still very low as roughly about 3% of India’s population invests in equity markets as compared to 55% in US, which suggests that there’s lots of headroom for India’s stock marketplace p...

UNDERSTANDING ESG FRAMEWORK

Most investors focus on the profit generating ability of a business to make investment decision. However, over the last few years, the societal discussions about companies and businesses have also started focusing on sustainable development, and corporate social responsibility. This has given traction to investment theme that is focused on Environment, Social and Corporate governance (ESG). Initially this framework was used by handful of “Impact” investors. But this framework has gradually gained traction as these frameworks also provide commercial value. Under this framework investors evaluate companies based on these criteria: (i) How does the company’s activities affect the environment? Companies with low carbon emission and low contributors to pollution rank better than others. (ii) What are the activities that the company perform in terms of social development? This includes focus on human rights, gender equality and many such social factors. Companies that contri...

WHAT ARE DEFENSIVE INDUSTRIES?

These are industries that create products and services that have low income elasticity i.e., a fall or rise in income does not affect the demand significantly. Therefore, these industries experience minimal impact on account of economic cycles. Rather, their business prospects are affected only by secular trends. Food, agricultural inputs, healthcare and pharmaceutical are some of the industries that come under this category. The defensiveness of this industry is the reason why analysts generally suggest to shift to the defensives during a equity market correction.

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