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New Delhi, Jun 2 () The downgrade of India's sovereign rating by Moody's has not come as a surprise as global rating agencies have lowered ratings and outlook of about 21 emerging economies following COVID-19 outbreak, SBI said in a report on Tuesday. India's sovereign rating was downgraded by Moody's to Baa3 with a negative outlook on the pretext of prolonged period of slower growth, rising debt and stress in financial system. Apart from sovereign rating downgrade, Moody's has taken rating actions on 11 Indian banks. "...It seems that the downgrade was not completely unexpected. This is clearly visible in the data that market is not yet impacted by the rating downgrade. BSE Sensex and NSE Nifty rose and even Rupee appreciated against the US Dollar. "...India has not been alone to witness rating downgrade. So far around 21 emerging and developing countries have registered either a rating and/ or outlook downgrade by the agency. This does not come as a total surprise as emerging markets are always more susceptible to rating downgrades compared to developed economies in times of stress even if some of them have very low debt to GDP ratio," SBI in its research report 'Ecowrap' said. The rating action, the report said, was no reflection on the ability of the Indian government to service its debt obligations. "The sovereign external debt comprises around 20 per cent of the total external debt. The current level of foreign exchange reserves are sufficient to meet any debt obligations," the report added. The downgrade was unlikely to result in any immediate repercussions on exchange rates and bond spreads immediately on India offshore bonds, the report said, adding "...we need to be careful that we remain in investment grade and continue to give growth a big push through policy measures". It further said that in the current situation in India both the key interest rate and GDP are expected to fall further. "Our nominal GDP growth is likely to contract and based on this our interest-growth differential may turn positive also. Further, if interest rates are higher than expected, then the cost of rolling over a given debt increases," the report said. There have been studies which show that if the difference between interest rate and nominal growth rate is negative then there is no level of debt which is unsustainable, i.e. the government can borrow easily. The report also suggested that the government should only think of such interest-growth differential and not slippage in fiscal deficit. NKD CS BAL

Moody's rating downgrade not surprising: SBI report

<ul><li>Global ratings agency <keyword id="125045" type="CITY" weightage="20" keywordseo="Fitch-Ratings">Fitch Ratings</keyword> has downgraded <keyword id="42747" type="CITY" weightage="20" keywordseo="Tata-Motors">Tata Motors</keyword> with a negative outlook. </li><li>The ratings come in because of Tata Motors Limited’s weak sales in India and the continued sluggish sales from <keyword id="6354362" type="ORGANIZATION" weightage="20" keywordseo="Jaguar-Land-Rover">Jaguar Land Rover</keyword>.</li><li>Earlier in June, Moody’s too had downgraded Tata Motors.</li></ul>Another ratings agency has downgraded Tata Motors to ‘BB-’ with a negative outlook. Fitch Ratings has downgraded the automaker as with lesser chances of “TML's profitability and free cash generation in the next two to three years”. Tata Motors is impacted due to its UK-owned subsidiary Jaguar Land Rover, which has become a white elephant for the company. “Uncertainty around an orderly outcome of Brexit negotiations and the evolving global tariffs situation pose risks, in particular to TML's JLR business, which faces a significant level of production-sales mismatch due to concentration of its production base in the UK,” said the report. In addition to JLR related troubles, Tata Motors’ domestic business is also troubled by a general slowdown in the auto market. Tata Motors too has been witnessing a slowdown in its sales in India, as has been the case with the Indian auto market. In June 2019, Tata Motors <a href="https://www.moneycontrol.com/news/business/companies/tata-motors-global-sales-dip-5-in-june-4195251.html">reported </a>a 14% decline in India sales, while a 5% drop was seen in global sales. Cumulatively, Tata Motors sales in the first quarter of 2019-20 fell by 20%. A month back, credit rating agency Moody’s had downgraded Tata Motors with a negative outlook. Tata Motors’ <a href="https://www.moneycontrol.com/news/business/markets/tata-motors-slips-3-on-moodys-downgrade-4122961.html">shares</a> fell 3% after the downgrade. The Fitch Ratings report mentioned that another reason for its downgrade was that “JLR faces elevated risks.” Jaguar Land Rover’s global sales continued to decline in May with the company reporting a 12% dip in <a href="https://www.moneycontrol.com/news/business/jaguar-land-rover-global-sales-dip-12-in-may-4086381.html">May 2019.</a> In June 2019, its sales dropped by 9.6% year-on-year. Brexit, US-China trade war and <a href="https://economictimes.indiatimes.com/markets/stocks/news/tata-motors-mulls-selling-stake-in-jlr-agencies/articleshow/68216938.cms">signs</a> of a slowdown in the global economy could be the reasons for the losses incurred by JLR. China has traditionally been one of the biggest markets for the luxury car. JLR's sales volumes in China too massively by 29% year-on-year in the first quarter of FY20.

Tata Motors downgraded again, thanks to slow India business and ‘elevated risks’ from Jaguar Land Rover

<keyword id="3658" type="COUNTRY" weightage="60" keywordseo="India">India</keyword> is growing at its <a href="http://www.businessinsider.com/india-economic-slowdown-2013-5">slowest pace in ten years</a>, and the rupee has crumbled below the psychological level of 60 rupees to one dollar.
Despite this there has been little foreign selling of Indian stocks.
In a new report to clients, <keyword id="6361649" type="CITY" weightage="60" keywordseo="Goldman-Sachs">Goldman Sachs</keyword>' Sunil Kaul and his team downgrade Indian stocks to underweight.
"The investment case for India has turned less favorable," Kaul writes. "Growth recovery looks elusive, macro vulnerabilities are rising and positioning remains extended.
Here's a quick look at some of the macro factors that motivated the downgrade:
First, economic growth has been sluggish.
<div class="image-container" style="width:784px"><div class="image">Goldman Sachs</div></div>
Second, there are "no signs of a pick up in investment demand." Goldman also sees further risks to economic growth and in an earlier report downgraded their 2014 GDP forecast to 6%, from 6.4%.
<div class="image-container" style="width:798px"><div class="image">Goldman Sachs</div></div>
Third, "the external funding environment has become more challenging over the past few months as markets began to price “QE tapering” concerns and rising US yields." And <a href="http://www.businessinsider.com/gold-imports-hit-indias-current-account-2013-3">India's current account deficit</a> is adding to its vulnerability.
<div class="image-container" style="width:800px"><div class="image">Goldman Sachs</div></div>
Fourth, the Indian rupee has weakened against the dollar and is expected to "continue to face depreciation pressures." This chart from Google Finance shows how the rupee has weakened against the dollar over the past five years.
<div class="image-container" style="width:798px"><div class="image">Google Finance</div></div>
Fifth, they expect the Reserve Bank of India to keep monetary policy tight to help support the currency.
"Our economist thinks that given the vulnerabilities on the external balance of payments, a reversal in policy stance to liquidity easing over the next 3-6 months is a low probability event. We even think that there is a greater probability of the RBI keeping liquidity tight even beyond 6 months, and hiking policy rates as well, rather than cutting them."
Finally, they expect political risk to increase ahead of the 2014 general elections.
Goldman points out that foreign investors haven't heavily sold Indian stocks, but the risk of outflows is high. Indian bonds have however seen foreign selling. " Foreign selling has been more pronounced in Indian bonds which saw outflows of US$ 7bn since early June “taking out” almost all of inflows over the past one year."
<div class="image-container" style="width:800px"><div class="image">Goldman Sachs</div></div>
"We see further earnings cuts and limited room for re-rating," adds Kaul. "We downgrade India to underweight and recommend investors to stay selective. We favor exporter-facing sectors, strong balance sheet companies and thematic “alpha” trades."

Goldman Is Out With A Super Gloomy Note About India

<div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><a href="https://www.facebook.com/pg/SamuelAdams/photos/?ref=page_internal">Facebook/Sam Adams</a>Millennial don't have the taste for beer that their forebears did.</div></div></div>Millennials aren't drinking enough beer to keep brands afloat.According to <a href="http://www.cnbc.com/2017/07/24/goldman-downgrades-beer-stocks-because-millennials-like-wine-better.html">CNBC</a>, Goldman Sachs downgraded both Boston Beer Company and Constellation Brand on the data that younger consumers aren't drinking as much alcohol as older generations, and the ones that do <a href="http://www.businessinsider.com/wine-trumps-beer-with-millennials-2016-2">prefer wine</a> and spirits."We view the shift in penetration and consumption trends as driven by a shift in preferences in the younger cohorts," Goldman Sachs Chief Analyst Freda Zhuo wrote.Beer penetration fell 1% from 2016 to 2017 in the US market, while both wine and spirits stood unmoved, according to Nielsen ratings.Goldman Sachs now expects the overall beer market in the US to decline 0.7% in 2017. It downgraded Boston Beer Company from neutral to sell and Constellation Brands from buy to neutral. <div class="margin-top"> <h3>NOW WATCH: <a href="http://www.businessinsider.com/why-ipa-beers-have-india-name-explained-2017-6">Why IPA beers have 'India' in the name - and why it tastes so unique</a></h3> <div> <div> <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="42MGJuYjE6wC0WPlLKSRRgqFkNiWke9H" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div> </div> </div> </div>

Millennials are killing the beer industry

Moody's Investors Service on Monday downgraded India's sovereign credit rating for the first time in more than two decades, saying policymakers will be challenged to mitigate risks of <keyword id="1032787" type="PERSON" weightage="20" keywordseo="low-growth">low growth</keyword>, deteriorating fiscal position and <keyword id="9329640" type="UNKNOWN" weightage="20" keywordseo="financial-sector-stress">financial sector stress</keyword>. Downgrading India's rating by a notch to 'Baa3' from '<keyword id="2556110" type="COMPANY" weightage="20" keywordseo="Baa2">Baa2</keyword>' assigned in November 2018, Moody's estimated India GDP shrinking by 4 per cent -- first full fiscal contraction in more than four decades, as the country faces a prolonged period of slower growth. Accordingly, India's foreign-currency and local-currency long-term issuer ratings have been downgraded to Baa3 from Baa2. India's local-currency senior unsecured rating too has been lowered to Baa3 from Baa2, and its short-term local currency rating to P-3 from P-2. The outlook remains negative. "The decision to downgrade India's ratings reflects Moody's view that the country's policymaking institutions will be challenged in enacting and implementing policies, which effectively mitigate the risks of a sustained period of relatively low growth, significant further deterioration in the general government fiscal position and stress in the financial sector," Moody's said. 'Baa3' rating is the lowest investment grade -- just a notch above 'junk' status. Moody's had last downgraded India's rating in 1998. The negative outlook reflects dominant, mutually-reinforcing, downside risks from deeper stresses in the economy and financial system that could lead to a more severe and prolonged erosion in fiscal strength than Moody's currently projects, it added. Moody's said slow reform momentum and constrained policy effectiveness have contributed to a prolonged period of slow growth, compared to India's potential, that started before the COVID-19, and it expects this to continue well beyond the <keyword id="43587" type="ORGANIZATION" weightage="20" keywordseo="pandemic">pandemic</keyword>. Moody's said India faces a prolonged period of slower growth relative to the country's potential, rising debt, further weakening of debt affordability and persistent stress in parts of the financial system, all of which policymaking institutions will be challenged to mitigate and contain. The agency said its upgrade of India's ratings to Baa2 in November 2017 was based on the expectation that effective implementation of key reforms would strengthen sovereign's credit profile through a gradual but persistent improvement in economic, institutional and fiscal strength. "Since then, implementation of these reforms has been relatively weak and has not resulted in material credit improvements, indicating limited policy effectiveness," Moody's said. It said the decision to downgrade India's rating was taken in the context of the <keyword id="1754604" type="PERSON" weightage="20" keywordseo="coronavirus">coronavirus</keyword> pandemic, but was "not driven" by the impact of the pandemic. Rather COVID-19 pandemic amplifies vulnerabilities in India's credit profile that were present and building prior to the shock, and which motivated the assignment of a negative outlook last year. "Although a rating upgrade is unlikely in the near future, Moody's would change the outlook on India's rating to stable if outturns and policy actions were to raise confidence that real and nominal growth will rise to sustainably higher rates than Moody's projects, including through measures which enhance financial stability by strengthening the supervision, regulation and capitalisation of the financial sector. "Commensurate action to halt and reverse the rise in the debt trajectory, even slowly, would also support a stable outlook. Further, evidence that self-reinforcing economic and financial risks are rising would put downward pressure on the rating," Moody's said. Real GDP growth has declined from a high of 8.3 per cent in fiscal 2016 (ending March 2017) to 4.2 per cent in fiscal 2019. Moody's expects India's real GDP to contract by 4 per cent in fiscal 2020 due to the shock from the coronavirus pandemic and related lockdown measures, followed by 8.7 per cent growth in fiscal 2021 and closer to 6 per cent thereafter. Two other global rating agencies -- S&amp;P and Fitch -- too has projected Indian economy to shrink by 5 per cent in the current fiscal. The rating downgrade brings Moody's sovereign rating on India on par with S&amp;P and Fitch, which rate India at 'BBB-', the lowest investment grade. Thereafter and over the longer term, growth rates are likely to be materially lower than in the past, due to persistent weak private sector investment, tepid job creation and an impaired financial system. In turn, a prolonged period of slower growth may dampen the pace of improvements in living standards that would help support sustained higher investment growth and consumption. "While the government responded to the growth slowdown prior to the coronavirus outbreak with a series of measures aimed at stimulating domestic demand, and recently announced a support package aimed at supporting India's most vulnerable households and small businesses, Moody's does not expect that these measures will durably restore real GDP growth to rates around 8 per cent, which had seemed within reach just a few years ago," the US-based rating agency said. Moody's does not expect the credit crunch in India's undercapitalised financial sector to be resolved quickly. In turn, subdued growth further challenges the banking system's incomplete resolution of legacy non-performing assets and governance reforms, and is likely to further weaken asset quality and the health of banks as well as NBFIs. It said India's debt burden, which was 72 per cent of GDP in fiscal 2019, will rise to 84 per cent of GDP in 2020. Measures to improve India's fiscal strength, which were at the heart of the government's policy framework a few years ago, have "underwhelmed". Fiscal performance in recent years has been weaker than expected, with fiscal deficit targets consistently missed and a persistent lack of clarity on how medium-term fiscal consolidation objectives would be achieved, the agency said. SEE ALSO: <a href="https://www.businessinsider.in/stock-market/news/small-businesses-with-good-turnover-can-now-be-listed-and-the-indian-government-will-buy-the-shares/articleshow/76136857.cms" data-type="tilCustomLink">Small businesses with ‘good turnover’ looking to get listed on the stock market will have the Indian government will buying their shares</a> <a href="https://www.businessinsider.in/tech/news/bhim-app-left-aadhaar-cards-pan-numbers-and-biometric-information-exposed/articleshow/76135419.cms" data-type="tilCustomLink">CSC BHIM site left Aadhaar cards, PAN numbers, and biometric information exposed — could be used to carry out financial fraud and identity theft, says report</a>

Moody's downgrades India's rating first time in over 2 decades, says GDP to shrink by 4% in FY21

<ul><li>The credit ratio is in line with the positive credit quality outlook <keyword id="6359483" type="General" weightage="20" keywordseo="crisil" source="Orion">CRISIL</keyword> Ratings had articulated earlier. </li><li>Credit ratings on nearly 80 per cent of the CRISIL Ratings portfolio was reaffirmed. </li><li>The performance of upgraded companies improved significantly over the past three fiscals, despite the pandemic. </li></ul> Debt light balance sheets, domestic demand and better cash flows has resulted in higher credit ratio during the first half of FY23, said CRISIL Ratings. According to CRISIL Ratings the corporate credit ratio (upgrades vs downgrades) continues to be high -- at 5.52 times in the first half of this fiscal (H1-FY23) - underscoring ongoing broad-based improvement in India Inc's credit quality. The credit ratio was 5.04 times in the second half of the last fiscal (H2-FY22). Three reasons stand out: 1) strengthening domestic demand, with the economy expected to grow 7.3 % this fiscal; 2) higher realisations leading to better cash flows; and 3) continuation of debt-light balance sheets as capex remains low, CRISIL Ratings said. The credit ratio is in line with the positive credit quality outlook CRISIL Ratings had articulated earlier - that upgrades will far outnumber downgrades through this fiscal. Credit ratings on nearly 80 % of the CRISIL Ratings portfolio was reaffirmed, or there was no change during H1-FY23. For the rest of the portfolio, what has changed is the upgrade rate, which increased to 16.70 %, while the downgrade rate was flattish at 3.02 %. In all, there were 569 upgrades and 103 downgrades. According to the credit rating agency, the performance of upgraded companies improved significantly over the past three fiscals despite severe pandemic-related disruptions. "Around 35 % of all upgrades were from the infrastructure sector (including large realty players). Infrastructure sector is in a unique position of largely being a domestic story and generally decoupled from the global headwinds. Here, upgrades were driven by improved operating cash flows, completion of crucial project milestones and equity infusion. Over the last few years increasing share of central counterparties in infra projects has led to more predictable payment cycles providing additional comfort to credit quality," said <keyword id="909587" type="General" weightage="80" keywordseo="gurpreet-chhatwal" source="Orion">Gurpreet Chhatwal</keyword>, Managing Director. SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/stock-market/news/markets-fall-in-early-trade-on-weak-global-trends-fii-outflows/articleshow/94612214.cms">Markets fall in early trade on weak global trends, FII outflows</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/finance/news/rupee-falls-38-paise-to-81-78-against-us-dollar/articleshow/94611224.cms">Rupee falls 38 paise to 81.78 against US dollar</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/news/the-e-auction-closing-date-of-1200-gifts-given-to-pm-modi-extended/articleshow/94610736.cms">The e-auction closing date of 1,200 gifts given to PM Modi, extended</a>

Indian corporate credit quality remains strong in H1 of FY23: CRISIL

NEW DELHI: Back in April 2012, S&amp;P downgraded its outlook on India to BBB- (negative from stable) and since then the Indian government has managed to revive growth, attain fiscal consolidation and also bring down inflation. 
 
“We expect rating agencies to upgrade their outlook for India sooner rather than later,” BofA-ML said in a report authored by Indranil Sen Gupta and Abhishek Gupta. 
 
“We also thought the April 2012 S&amp;P outlook downgrade was unwarranted. With Moody’s downgrading their Brazil outlook last night, key EM peers are seeing downgrades,” added the report. 
 
Last week India pitched for a rating upgrade by international credit agency Moody’s, citing steps unveiled in the Budget 2014-15 to keep the fiscal deficit in check and provide impetus to growth. 
 Moody’s has assigned ‘Baa3’ rating to India, with a stable outlook, which suggests possibility of an upgrade. According to Moody’s, “the rating reflects high domestic savings and adequate <keyword id="6368276" type="COMPANY" weightage="80" keywordseo="Foreign-exchange">foreign exchange</keyword> reserves and the challenges posed by large fiscal deficits, recurrent inflation and weak infrastructure.” 
 
BofA-ML has identified top 5 compelling reasons for an outlook upgrade for India: 
 
Growth bottoming out: 5.5% FY15, 6.5% FY16, 7.5% FY18 
 
The slowdown in growth has largely been driven by the global down cycle rather than domestic structural issues. In fact, growth is bottoming out far higher than Brazil or Russia. This is why we always found concern that India would fall out of BRICs in 2012 to be baseless. In fact, BofA-ML believes that India should emerge as the second-largest EM after China by 2019. 
 
The global investment bank continues to reiterate its standing view that India’s potential growth is about 7.5%. It says, “We never thought that potential growth should be raised to 8-9% just because an upcycle pushed growth up to 8.4% during 2004-08.” 
 
 
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Inflation peaking off: 8.5% in August, but 6% in 2016 
 
BofA-ML also believes that inflation is largely ‘imported’ rather than being home-grown for all the lament about India’s ‘inflation problem’. “As we have often highlighted, the RBI’s growth-inflation trade-off has been far better than most EM peers,” it says. 
 
In any case, the global investment bank thinks that inflation is peaking. “Although we have higher-than consensus inflation forecasts (8.5% in August, 7.8% consensus; 8% in July, 7.4% consensus, 8% actual), this is driven by a temporary spike in tomato prices on poor rains. This will reverse with the seasonal rainfall deficit down to 11 per cent of normal,” it says. 
 
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Twin deficit risks overdone 
 Risks from twin deficits have proved overdone. <keyword id="6355261" type="POSITION" weightage="80" keywordseo="Finance-minister">Finance Minister</keyword> <keyword id="6390789" type="COMPANY" weightage="100" keywordseo="Jaitley">Jaitley</keyword> has expectedly stuck to the fiscal deficit target of 4.1% of GDP set in the February Budget. There are risks to his fiscal deficit target as: (1) tax projections are ambitious; (2) Fed tapering may make divestment difficult; and (3) FY14 expenditures were deferred to the current fiscal year. 
 At the same time, this will likely not impact the government’s Rs4958bn net borrowing, as it has also inherited a large cash surplus of Rs1284bn with the RBI from the previous <keyword id="26374" type="ORGANIZATION" weightage="80" keywordseo="UPA-government">UPA government</keyword>. 
 
 
 
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RBI to buy FX to guard against contagion; hold Rs58-62/USD 
 BofA-ML continues to expect Governor <keyword id="6355561" type="PERSON" weightage="80" keywordseo="Rajan">Rajan</keyword> to buy FX at Rs58+/USD to guard against contagion as Governors Jalan and Reddy did. This is reversing the policy mistake of completely unsustainable appreciation by stopping to buy FX reserves in 2H09-1H11. 
 
As import cover plummeted, that led to a 50% depreciation later. This will likely stabilize Rs58-62/USD. “Any emerging market today is going to look at the currency volatility and say ‘whatever money comes in, I’m going to be careful about it, I am going to build some reserves’..,” Governor Rajan reiterated last week. 
 
RBI to cut rates even if Fed hikes; 75 bps cut February onwards 
 
BofA-ML believes that the RBI can cut rates even if the Fed hikes rates from September 2015, with Governor Rajan recouping FX reserves. “We see it cutting policy rates by 75-100bp starting in February, even if Fed Chair Janet Yellen hikes from September 2015, as our US economists expect,” it says.

Top Five Reasons Why Rating Agencies Should Upgrade India Outlook: BofA-ML

<ul><li>Insurance regulator IRDAI warns insurance firms to make “prudent” decisions when investing in companies whose credit ratings have been downgraded. </li><li>IRDAI had recently allowed <keyword id="6367143" type="UNKNOWN" weightage="20" keywordseo="LIC">LIC</keyword> to vastly exceed the maximum of 15% stake an insurer can hold in any one company. </li><li>Policyholders’ funds potentially at risk with large exposure to the investments.</li></ul> Amid an escalating bad loans crisis, India appears to be <a href="https://www.businessinsider.in/after-idbi-bank-lic-now-has-to-bail-a-huge-infrastructure-lender-out/articleshow/65840416.cms">relying heavily</a> on the capital of state insurance giant Life Insurance Corporation (LIC) to bail out some of its troubled lenders, leading to experts worrying about a dangerous precedent being set by the insurer. The country’s bad debt crisis involving its state-owned <keyword id="6368751" type="UNKNOWN" weightage="20" keywordseo="banks">banks</keyword> had largely been believed to have had manageable systemic risk with fairly low liquidity concerns –- until now. India is in the midst of its worst <a href="https://timesofindia.indiatimes.com/business/india-business/worst-liquidity-crunch-in-two-years-spooks-indian-financiers/articleshow/65935292.cms">liquidity crisis</a> in two years triggered by the potential bankruptcy of infrastructure finance company <a href="https://www.livemint.com/Money/QBX7Nlk3SmtboyZPExoKtN/ILFS-Its-time-for-a-surgery-not-bandaid.html">Infrastructure Leasing and Financial Services Ltd</a> (<keyword id="6357293" type="UNKNOWN" weightage="20" keywordseo="ILFS">IL&amp;FS</keyword>), which has defaulted on a series of loan repayments, raising alarm in the country’s shadow banking sector and spooking financial markets. LIC, the largest shareholder in IL&amp;FS with a 25.3% stake, is <a href="https://www.businessinsider.in/after-idbi-bank-lic-now-has-to-bail-a-huge-infrastructure-lender-out/articleshow/65840416.cms">reportedly</a> investing close to ₹40 billion ($550 million) into IL&amp;FS non-convertible debentures and also expected to subscribe to a ₹45 billion rights issue later this year. It is reportedly in the process of <a href="https://www.livemint.com/Companies/7sWf4fZDJAagLyFgyWemuN/ILFS-may-move-NCLT-against-admitting-bankruptcy-case.html">requesting</a> India’s insolvency court National Company Law Tribunal to allow it time to resolve its current situation through its capital raising efforts and hold off on admitting a bankruptcy suit. The news of IL&amp;FS comes weeks after LIC stepped in to also bailout state-owned <keyword id="67881" type="CITY" weightage="20" keywordseo="IDBI">IDBI</keyword> Bank by increasing its stake from 8% to 51% for upto ₹130 billion. Regulatory exceptionalism India’s regulators restrict investments by insurance organisations to a maximum of 15% stake in any one company. In the IDBI case, LIC sought special clearance from India’s insurance regulator Insurance Regulatory and Development Authority of India (IRDA), which reportedly <a href="https://www.livemint.com/Companies/XY6tlJMDpBAKAlhv2dPczJ/IDBI-Bank-says-no-discussion-on-investment-by-LIC.html">waived the threshold</a> “based on market conditions and the larger interest of the market and shareholders,” Mint reported in June. Additionally, out of the investment LIC made in IDBI, less than 1% or only about ₹1 billion has come from LIC’s shareholders with the remaining being policyholders’ money, according to the Mint report. That shows the extent of how risky the move can be. While LIC has indicated it will pare down its stake in IDBI in the coming years, no timeframe has been set by the insurer. LIC had earlier made an <a href="https://economictimes.indiatimes.com/markets/stocks/news/will-lic-follow-the-corp-bank-model-to-pare-stake-in-idbi/articleshow/64957202.cms">investment</a> in Corporation Bank exceeding the threshold limit of 15% to buy a 27% stake, which took about 16 years for LIC to pare down, experts point out. A case of throwing good money after bad? Following the news of LIC investing in IL&amp;FS, a subtle warning has come from the Insurance Regulatory and Development Authority of India (Irdai), which has asked insurance firms to make “prudent” decisions when investing in companies whose credit ratings have been downgraded. Subhash C Khuntia, chairman of IRDAI, has <a href="https://www.business-standard.com/article/markets/i-m-sure-lic-will-take-a-prudent-decision-on-il-fs-says-irdai-chairman-118091200040_1.html">said</a>, “Normally, when there is a downgrade, insurers should withdraw their investment and place it somewhere else,” Khuntia said, adding it is up to the insurer to derive maximum value from its investments. The National Organisation of Insurance Workers (NOIW), has also opposed LIC’s move to invest in IL&amp;FS, with NOIW organising secretary Milind Ballal <a href="https://mumbaimirror.indiatimes.com/mumbai/other/sangh-union-opposes-lic-investment-in-ilfs-group/articleshow/65894098.cms">stating</a> “thousands of crores of rupees collected by the LIC from ordinary Indians as premium is at stake.” Joydeep K. Roy, partner and leader, insurance sector, PwC, had termed LIC’s investment in IDBI an <a href="https://www.livemint.com/Companies/XY6tlJMDpBAKAlhv2dPczJ/IDBI-Bank-says-no-discussion-on-investment-by-LIC.html">“extraordinary event</a>” that “should not be allowed as a precedent.” “Insurers holding a larger share of any one company for policyholders’ funds can increase the entire risk profile of the portfolio. However, this is ultimately an equity transaction for policyholder funds and can result in profits or losses,” Roy said. While Sanket Kawatkar, Principal and Consulting Actuary, Life Insurance, Milliman India, has <a href="https://economictimes.indiatimes.com/wealth/insure/lic-idbi-bank-deal-how-life-insurance-companies-invest-your-money/articleshow/64894026.cms">warned </a>LIC policyholders’ benefits would be adversely impacted if LIC incurs a loss on its investment. Elsewhere, insurers’ exposure to bad debt has led to dire consequences. In the 2008 credit crisis in the US, for instance, insurance giant American Insurance Group (AIG) had a near collapse because of the insurer’s exposure to soured loans through its investment in risky credit default swaps. That led to the US Federal Reserve bailing out AIG by giving a crucial loan of $85 billion that kept it from going under.

Why India’s reliance on state insurance giant LIC to bailout troubled lenders is worrying

<ul><li><keyword id="42747" type="COMPANY" weightage="20" keywordseo="Tata-Motors">Tata Motors</keyword>’ stock fell by over 10%, touching a 52 week low for the company. </li><li>It had posted a massive loss of ₹36.8 billion in the first quarter of the current financial year. </li><li>The losses for the quarter doubled as compared to ₹18.6 billion in the same quarter of last year. </li></ul>Tata Motors is in deeper trouble than its Indian auto counterparts. It is saddling the pain of Indian auto slowdown as well global slowdown, thanks to its subsidiary <keyword id="6354362" type="COMPANY" weightage="20" keywordseo="Jaguar-Land-Rover">Jaguar Land Rover</keyword>. In today’s trade, its stock fell by over 10%, touching a 52-week low. It was trading 9.25% lower in the day’s trade at ₹112 on NSE, before hitting its low of ₹109.50. As the auto industry in India sees its biggest slowdown spilling over to 10 months now, the woes only seem to pile on for auto giant. The company had also cut production to align with the low demand in the Indian market. Losses mount Tata Motors posted a massive loss of ₹36.8 billion in the first quarter of the current financial year. The losses for the quarter doubled as compared to ₹18.6 billion in the same quarter of last year. Its UK-owned subsidiary Jaguar Land Rover too saw its net revenue stand at ₹50.74 billion, 2.8% lower than it was last year. Dropping sales Jaguar Land Rover’s global sales continued to decline in May with the company reporting a 12% dip in <a href="https://www.moneycontrol.com/news/business/jaguar-land-rover-global-sales-dip-12-in-may-4086381.html">May 2019.</a> In June 2019, its sales dropped by 9.6% year-on-year, meanwhile Tata Motors <a href="https://www.moneycontrol.com/news/business/companies/tata-motors-global-sales-dip-5-in-june-4195251.html">reported </a>a 14% decline in India sales, while a 5% drop was seen in global sales. In July, Tata Motors announced a 34% dip in its total domestic sales compared to 50,100 units sold over last year as subdued demand continued in July 2019. “The slowing economy, excess capacity created on account of increased axle load norms, slowdown in execution of infrastructure projects over the past few quarters, drop in discretionary consumption, and poor liquidity conditions in tight financing environment have led to severe contraction in total industry volumes across segments,” the company had then said in a statement. Downgraded by rating agencies Global rating agencies <keyword id="125045" type="COMPANY" weightage="20" keywordseo="Fitch-Ratings">Fitch Ratings</keyword> and Moody’s both had downgraded Tata Motors with a negative outlook earlier in June. Global ratings agency Moody’s too believes that Jaguar Land Rover will probably default on its loans. "The downgrade reflects Moody's expectation that leverage will remain elevated and free cash flow negative for fiscal years 2020 and 2021 as Jaguar Land Rover seeks to turn around performance in China, executes its restructuring programme and continues to invest in its future model line-up including electrification," said Tobias Wagner, Vice-President and Senior Analyst at Moody's. <keyword id="6355333" type="UNKNOWN" weightage="20" keywordseo="Brexit">Brexit</keyword>, US-China trade war and <a href="https://economictimes.indiatimes.com/markets/stocks/news/tata-motors-mulls-selling-stake-in-jlr-agencies/articleshow/68216938.cms">signs</a> of a slowdown in the global economy could be the reasons for the losses incurred by JLR. China, which has traditionally been one of the biggest markets for the luxury car.

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