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Debbie Mascarenhas made post

What does it mean when Moody’s rates Infy, TCS and RIL above India’s sovereign ratings?

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Crowny Pinto answered.
1 month ago

Moody's has rated TCS, Infosys and Reliance above the sovereign rating assigned to India due to their strong financials and significant global earnings. The higher rating also indicates confidence that even if the sovereign rating was downgraded to speculative, Moody’s was confident that these companies could sustain their earnings and solvency.

However, companies which had a strong linkage to the government have not been assigned this privilege. For example, in the case of ONGC and Petronet LNG, the ratings were capped at the same level as the sovereign rating because of their strong links with the government or other government-owned entities. This has turned out to be a ceiling for them.

In the case of TCS and Infosys, Moody’s has classified them as globally competitive companies with minimal reliance on domestic funding. This allowed these companies to be rated up to two notches above the sovereign. Currently, both TCS and Infosys have been rated two notches above the sovereign grade. This is likely to be positive for IT stocks.

In the case of Reliance, the privilege has been more due to the scale and the diversified nature of the business. With the slew of placements done in Reliance Jio, the funding has become more balanced and the company is also poised to move towards zero net-debt. Hence RIL has been rated one notch above the sovereign rating of India.