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Global rating agency Standard & Poors on Friday upgraded Indias top three information technology firms, noting that these businesses have the ability to withstand sovereign stress, reports fe Bureau in Mumbai.
Wipro is stable, while for TCS the outlook on the foreign currency rating is negative and that on its local currency rating is stable.
We upgraded TCS because we believe the company has the business and financial flexibility to withstand a significant period of sovereign stress and still have enough liquidity to honour all its obligations in a timely manner, explained Abhishek Dangra, credit analyst at Standard & Poors.
A similar argument was cited for upgrading the ratings of Infosys and Wipro. The negative outlook on TCS foreign currency rating is a reflection of the negative outlook on Indias sovereign credit rating. S&Ps sovereign rating for India currently stands at BBB- with a negative outlook. However, Indias Transfer & Convertibility (T&C) assessment stands at BBB+. A T&C assessment is the rating associated with the likelihood of the sovereign restricting non-sovereign access to foreign exchange needed to service debt.
The three IT majors join a handful of companies that are now rated higher than the sovereign rating. Reliance Industries, which was upgraded to BBB+ by S&P in May this year, also enjoys a rating two notches above the sovereign rating.
There has been a change in S&Ps corporate criteria which stipulates stress test for rating any Indian corporate above Indias T&C of BBB+. Hence, the Indian companies which clear the stress test can be upgraded up to two notches above this level, Dangra told FE.
The agency stress test includes a hypothetical scenario under which the companies see a 20% fall in Ebitda and a 10% loss in the value of the companies bank deposits in India. The three firms passed this stress test, allowing them to be rated above the sovereign. In addition, the companies also showed resilience under a separate stress test which assumed a scenario where the companies can access only 25% of their export revenues and had no access to cash flows and assets in India.
Infosys and Wipro will be upgraded if they improve