Updated on 7 September 2012
So, to me the answer is that this sector has largely not been affected. However, India's Pharmaceutical Risk/Reward Rating (RRR) score has dropped from 56 in the second quarter of 2012 to 54.4 during the third quarter of 2012 due to falls in its industry risks and country risk scores. As a result, India's position on the proprietary ranking system is now 10 out of 18 countries, falling a position behind New Zealand.
Do you think credit ratings from such agencies matter?
To understand ratings, it is important to look back in history. For Enron Corp, S&P's, Moody's and Fitch gave no indication of its financial trouble until just days before Enron filed for bankruptcy in 2001. They have been under scrutiny for giving high, "investment-quality" ratings to unworthy mortgage-backed securities.
Then, they were criticized for their favorable pre-crisis ratings of insolvent financial institutions such as Lehman Brothers, as well as risky mortgage-related securities that contributed to the collapse of the US housing market in 2008. In 2009, Moody's issued a report titled 'Investor fears over Greek government liquidity misplaced' within six months of which the country was seeking a bailout. Then, S&P's sovereign debt team miscalculated the US debt by as much as $2 trillion when it downgraded the US credit rating in August 2011.
Recently, Mr Deepak Parekh, chairman, HDFC, suggested that these rating agencies need to be "rated". Not all of them have sufficient exposure to the dynamics and intricacies of this industry due to diversity and complexity. Also, there are several pockets of growth that are still not tapped and it is very unlikely that such agencies may even know about it. Many such ratings are a rear view mirror and may not foretell about future prospects accurately.
However, there are cases where rating agencies have not got their data right. For instance, S&P's rated Spain (BBB+) ahead of India (BBB-) and not many know that the rationale was the prevailing economic scenario of Spain against India's growth story. So, my worry as a citizen and not being an economist is how do I trust these ratings? Also, how much importance should I give them?