'S&P downgrade is like Dawood lecturing on internal security'

Rating agencies Moody’s and S&P are a waste of time and none of their ratings deserve attention beyond a few minutes, said Shankar Sharma, director & global equity strategist at First Global, to ET Now after S&P’s downgrade yesterday. He added that India does not deserve the BBB rating that the agencies have assigned it, going by the ratings many other European countries enjoy.

Sharma argued that India has had a challenging period over the last four to five years but has done well compared to other major economies, including China, and the developed markets. He said there is excessive harping on fiscal deficit and instead the focus should be on “debt to GDP and that is the real number that makes countries go burst.” India has brought down this ratio over time.

[caption id=“attachment_289462” align=“alignleft” width=“380” caption=“He argued against trusting S&P’s revision of outlook on India on grounds that rating agencies have had zero credibility in the last 25 years Reuters”]  [/caption]

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He, however, cautioned that investors are concerned about India’s tax revisions like the Vodafone case or the GAAR provisions, which may tax FIIs who are trying to avoid paying them by opening shell companies in tax havens like Mauritius. But Sharma believes the Indian stock market will outperform the BRICS this year. And once India starts outperforming, people will want to invest here irrespective of higher taxes, he said.

He said, “If you see, out of the 200 stocks we track in India, 95 stocks are up between 35% and 110% in the last three months… The fact is that the rupee was 52 in December and 52 now, but stocks are up between 40 percent and 100 percent and barring the US, I do not know if too many other markets have given you that kind of performance.”

He argued against trusting S&P’s revision of outlook on India on grounds that rating agencies have had zero credibility in the last 25 years. He told NDTV Profit, that in 1980s the agencies had assigned high ratings for Latin America, especially at a time when they were going bust. Similarly they had positive ratings for Asian economies at the peak of its crisis in 1997-98. And then came the euro and the subprime crisis too. “That’s like Dawood Ibrahim coming and lecturing us on internal security,” he quipped.