Stock Market Rating Agencies | Abhishek Kar - YouTube

2008, whether take January, February, March or April

There were a lot of rating agencies,

Who said that market is going in such way that market is not going to fall from here,

They believed that it’s a new ere,

There are so many fundamental changes,

And then a lot of people started believing on this thing,

And why they should not?,

When we talk about investment banking and credit rating agencies,

So here the employees are graduates from world top institutions,

Like Harvard, London business school, stand fort, Oxford,

And it’s a very obvious thing that in world we give the most weightage to

A person’s degree and his college,.

Everybody felt like if all knowledgeable people are saying

That market won’t change from here, so everything is good,

So let’s just keep investing,

But on September 15, 2008, all these myths got clear and got busted,

A very big institute "Lehman Brother",

On which we already made video about 2008's crisis,

That got bankrupt,

Because of this, US market starts falling down drastically,

As soon this news got out, bank run started,

For those who don’t know what is Bank run,

Then it means, you quickly go to your bank and starts withdrawing your money,

With the fear that if a bank like Lehman can close,

Then what if our bank also close the very next day, we will be in total loss,

And this slowly started spreading out to

Other emerging economies, and developing nations like India,

And putted a very bad impact,

So now the question arises that

If credit agencies give outlook of any nation with this much confidence,

Or outlook of any stock,

Or outlook of anything,

Then why do we take it so seriously,

And what is the full truth behind these credit rating agencies,

We will understand in today’s video,

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So first of all, you have to understand this thing that,

The work of Credit Rating agencies is to give opinion,

And giving opinion is one of the best businesses in this entire world,

Like see anyone,

Even when the conversation of COVID was going on,

Everyone was on same thing, i.e. giving their opinion,

Will wave 2 come or not?,

If wave 3 will come then in which month will it come?,

And everyone was going through the assumption,

Same thing is the work of credit rating agencies,

They actually had to give informed judgement & informed opinion

About what can happen according to them, based on their calculations,

Based on their philosophies that what can happen in market or any asset class,

They give their opinion on that,

The only difference is we give more weight to their opinion,

Now why?,

I told you in the beginning of video, they are well qualified,

They have a very big research team,

And that’s why we give them weight that they are going to be right somewhere,

The problem is that, that the upgrades these people gave, or downgrades,

They already come after much delay,

Let me give you an example,

Before 2001, there was one foreign company "Enron",

On which we also had made one video on our channel,

So all these huge rating agencies, used to upgrade this company always,

Now the problem was, in 2001,

When the whole buddle got burst, after that when stock was full crashed,

When people already had a very huge loss,

After that they started giving downgrade,

Now the problem was, people had invested thinking,

If all the rating agencies are saying nice about it,

Then nothing can get wrong in this,

So that’s why they kept investing,

One more things that happened was,

Whenever a good player or good stocks starts growing,

They never give upgrade in its beginning,

Do notice it that their upgrades or their downgrades,

Do tell in comment section if you have noticed this thing,

The upgrade or downgrade of any agency usually comes

When the stock is near its highest, i mean around 52 weeks high,

Or around 52 weeks low,

After the market had already fallen down,

After that these agencies announce that market is in very panic mode,

If market comes so high, then 2-3 rating agencies comes up and says

That It is overvalued,

Other keeps saying that

Good things are still to come keep on investing and all those things,

So the very first thing, that happens with credit rating agencies that

The time till which they actually do the upgrade or downgrade,

There is a very huge delay happened,

By the way, if you guys have 2 eyes and one nose then make sure to like this video,

So that i can know that how many of you have 2 eyes and one nose,

Coming back to the point,

Now let us take a country wise example,

That what is the scene of the outlook of country given by them,

So when i talk about Spain, the debt of Spain, it’s more than us,

They have bigger issues than us, in terms of unemployment,

In terms of default of banks,

If you compare with other nations, so the defaults of bank in India,

Like those bank which get bankrupt and close, this is comparatively so less,

But still when you look at these agencies which give outlooks,

So these, even to those countries, where unemployment is more,

In which default of banks is more,

Even after having these many issues, they give more rating to them,

Now you might be thinking why?,

First of all, somewhere, western countries

Or emerging nations, if i say emerging nations,

They look at them with lower levels,

Sometimes for making them happy they do give positive outlooks,

But when it comes about comparison with our western peers,

So it’s an obvious thing that we get less rating,

Just because they wear suits and we wear Salwar & Kurta,

Just because they talk in polished English,

Portugal is being given more rating though when you go in deep ground reality,

So you will see that pain, in terms of development is more than India,

No doubts, we also have problems at our place,

But still,

So the third thing we have to understand is, these rating agencies are very much biased,

Next you have to understand that what the benefit of these ratings is,

These rating are beneficial in bank lending & bank borrowing,

For running any big industry, they had to take loan from banks,

And banks give you loans on the basis of your ratings,

So if your company's rating is good,

Then it’s an obvious thing that bank will give you more loan, more borrowing,

That will help you in increasing your productivity,

And due to increase in productivity, your margins will increase

And due to increase in margins, you will get profit,

But now let us look at some shocking thing, let us talk about India,

On February 2016, to Bharti Airtel's bond,

A lot of credit rating agencies said,

They are so bad, Bharti Airtel as a stock is pretty bad,

And we should stay away from all these things,

The heights were crossed

When they were comparing our bonds with worst things in Russia,

And the funny thing is that

That after February 2016, bonds did performed pretty well,

Like if you will do compounding then they had gave around 16%,

Along with that look at stocks performance, after 2017-18, of Bharti Airtel,

The funny thing is, you can take it as a hint that

If you like any stock,

And if credit rating agencies are giving very negative outlook,

Then you don’t need to fear,

You have to check the fundamentals, if they are correct then stick to it,

And you can even increase your positions in that,

Because it’s been shown a lot of times,

One survey was conducted on the basis of 2008 crisis,

115, talking about permanent once, 115 ratings were given,

From which, you will be shocked

80% of those were not even close to 5% of market reality,

And the things market did in next 3 year,

80% of them were not even 5% close to that

And do you know how many were close?,

Only 2%,

So you can understand that how we should,

To these rating agencies,

Specifically when they are giving outlook to our country,

Specifically when they are giving outlook to other things,

How we should take it,

Same things happen with downgrade,

Till downgrade comes, Idea's downgrade came, YES bank's downgrade came,

Till then everything was done,

The whole damage was done,

So next time,

You guys have to keep this in mind that even before investing into any company,

If you are solely doing it on the saying of rating agency,

Like if rating agency have said that India outlook is this,

Rating agency have said this,

So you should be beware of all these things,

I hope you are able to learn something from this video,

So if you found something knowledgeable then make sure to hit like,

Do share it with your friends,

Till then keep learning, keep growing, keep investing & Keep Trading