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For those who are not familiar with credit rating agencies and the impact they can have on your life, Moody’s Investor Services is a credit rating agency that provides reports to individuals, companies and governments on the financial strength of debt issuers.
Moody’s has been incredibly accurate in its debt ratings. They have been correct in predicting bankruptcies between 85% and 99% of the time. Many credit rating agencies have been very accurate. For example, Bilfinger Berger was in Moody’s AA-March 12, 1998. It was downgraded by Moody’s to A3 on Jan 15, 2004. Moody’s correctly predicted the company’s downfall because of the fall in real estate prices after the Lehman Brothers collapse and rating agency warnings about the over-leveraging of companies to fund these projects.
Moody’s Investor Services
The information and research products of Moody’s Investors Service are used by investors, regulators and financial professionals worldwide.
In March 2012, Moody’s Investor Services changed its name to Moody’s Analytics and merged with the economic research group of McGraw Hill Financial. Both companies are subsidiaries of Moody’s Corporation (NYSE: MCO).
Moody’s India
Moody’s Investors Service is an internationally recognised rating agency with over 100 years of experience in assessing government-related and corporate debt obligations. It provides ratings on bonds, loans and financial instruments, such as equity and insurance policies. Moody’s is a major issuer of credit ratings to investors in India. Its ratings provide investors with a risk assessment of the creditworthiness of issuers.
Credit rating agencies’ research paper
Let us understand the credit rating agencies’ research paper.
Credit rating agencies’ ratings assigned to debt instruments are based on a complex body of research and analyses. Valuable inputs used by rating agencies include, among others. This process involves data analysis of credit rating agencies in India, including business, financial, and industry analysis.
Data analysis of credit rating agencies in India
Financial analysis: Identifying trends in credit rating agencies’ ratios
Moody’s Investors Service (MIS) has come through all the major shocks of the past five years with a strong credit profile. The company’s ability to withstand all these has been brought out in its profitability, profitability growth and sustainable growth in recent years.
Business analysis: Analysing trends in MIS’ business
Moody’s consolidated operating revenue has grown at an average annual rate of 16% from 2003 to 2007 (from Rs. 651 crores to Rs. 1,619 crore), primarily driven by growth in institutional clients and increased assets under management. During the same period, other revenue grew at a compound annual rate of 11% (from Rs. 50 crores to Rs. 73 crore).
Industrial analysis: Gaining future insights into MIS’ clients
The institutional business of Moody’s India is dominated by banks, government and public sector companies, financial institutions, insurance firms and brokerage houses.
Macroeconomic analysis: Evaluating the underlying credit conditions in India
Gross domestic product (GDP) growth has averaged 8% over the past few years. Its volatility has come down over time, increasing the predictability of GDP performance, which will correlate with industrial growth and corporate earnings.
Traditionally, rating agencies have not been a subject of academic analysis. However, the advent of new technologies for quantitative research, such as computational and machine learning techniques, has given rise to many notable papers in recent times. Besides being applied in finance for a wide variety of financial instruments and their risk profiles, these techniques have also been used to analyse credit rating agencies’ risk rating processes.
Benefits of Credit Ratings
- It provides the basic idea about the risk of a company or an individual
- It helps in deciding matters
- It helps in taking the right decision
- It establishes a relationship between one person and another person
- It shows how much is to be paid or given as commission to the broker
- It can be used for competition
- It can be used for the preparation of income tax returns
- It acts as a guide to deciding which investment to invest in and at what rate of return.
Conclusion
Moody’s Corporation is the holding company that owns Moody’s Investor Services.
Moody’s investor services rates fixed-income debt securities, and Moody’s Analytics, which provides software and research for economic analysis and risk management.
Credit ratings are the product of a company’s analysis of data, usually financial information, given by lenders and other credit-reporting agencies. Each rating is assigned a numerical value that represents the probability (or ‘riskiness’) that the issuer will default on its debt obligations. Ratings are meant to be descriptive, not prescriptive because they are based on internal algorithms rather than human judgement.
