Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
FED TAPERING STANDARD AND POOR’S CRITERIA FOR SOVEREIGN RATINGS Understanding Standard and Poor’s Criteria for Sovereign Ratings STANDARD AND POOR’S CRITERIA FOR SOVEREIGN RATINGS The current crisis in Europe has brought into the spotlight sovereign creditworthiness and highlighted the ongoing task of credit ratings agencies in assessing this issue. Sovereign government bonds are issued globally and it is imperative that investors have globally recognized and consistent benchmarks to guide their investment decisions. STANDARD AND POOR’S CRITERIA FOR SOVEREIGN RATINGS There are 3 major credit rating agencies known as Moody's, Standard and Poor's(S&P) and Fitch. They account for 90% of the market. The focus will be on Standard & Poor's to explain their criteria on sovereign ratings. The list of the criteria is as follows:- STANDARD AND POOR’S CRITERIA FOR SOVEREIGN RATINGS 1) Institutional Effectiveness and Political Risks: If the judiciary, the executive and the legislature along with scores of other institutions such as CAG, Election Commission, Police, and Defense etc. are robust. Political risk is a reflection of government stability that indicates whether the government is enjoying reasonable confidence in both the Houses of Parliament and whether it is expected to last its complete term. STANDARD AND POOR’S CRITERIA FOR SOVEREIGN RATINGS 2) Economic Structure and Growth Prospects: This looks at economic growth and future potential. It may also analyze the debt to GDP ratio and several other financial ratios to arrive at the health of the economy. STANDARD AND POOR’S CRITERIA FOR SOVEREIGN RATINGS 3) External Liquidity and Internal Investment Position: The focal point is whether FIIs are considering India as a good destination for investment, whether FDI money is coming in and whether the domestic investment scenario is good. STANDARD AND POOR’S CRITERIA FOR SOVEREIGN RATINGS 4) Fiscal Performance and Flexibility: This focuses on if the fiscal deficit is under control, whether budgetary management is professional, and if the aid being offered by the government has any basis or not. STANDARD AND POOR’S CRITERIA FOR SOVEREIGN RATINGS 5) Monetary Flexibility: If the RBI is robust in its performance, if it regulates money supply according to the need, whether inflation is being kept under check, and what the expectations are going forward. STANDARD AND POOR’S CRITERIA FOR SOVEREIGN RATINGS Source: Understanding Ratings: Standard & Poor's Rating Services http://img.en25.com/Web/StandardPoorsRatings/Sov_Default_2011.pdf STANDARD AND POOR’S CRITERIA FOR SOVEREIGN RATINGS Hope you have understood Standard and Poor’s criteria for sovereign ratings Please give us your feedback at [email protected] DISCLAIMER The views expressed in this lesson are for information purposes only and do not construe to be any investment, legal or taxation advice. The lesson is a conceptual representation and may not include several nuances that are associated and vital. The purpose of this lesson is to clarify the basics of the concept so that readers at large can relate and thereby take more interest in the product / concept. In a nutshell, Professor Simply Simple lessons should be seen from the perspective of it being a primer on financial concepts. The contents are topical in nature and held true at the time of creation of the lesson. This is not indicative of future market trends, nor is Tata Asset Management Ltd. attempting to predict the same. Reprinting any part of this material will be at your own risk. Tata Asset Management Ltd. will not be liable for the consequences of such action. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.