ES. How Acuité Ratings & Research has served its clients worldwide. Please take us through the journey of Acuité Ratings & Research Limited since inception and some major milestone achieved over the years.
Sankar Chakraborti. Acuite is an institutionally owned and promoted rating agency and its shareholders include SIDBI, D&B, SBI, Bank of Baroda, PNB, Union Bank, Bank of India, ICICI Bank among others. Acuite has assigned over 9,100 ratings since 2012. Acuite has several firsts to its credit:
- First CRA to introduce QR codes in its Rating Letters & communication for lenders to establish the authenticity of the document carrying the rating communication
- First CRA from India as a signatory to UNPRI
- First CRA in India to include a section on ESG assessment in the Rating Rationales of issuers that form part of the top 1000 listed entities
Acuite launched an app “RatingsBuzz” that is available on Android and iOS platforms for easy, convenient and leisurely access to all rating actions and rating rationales to bankers, investors and other rating users.
Acuite launched Bankers’ Connect – a platform to collect bankers’ and investors’ feedback on Acuité rated entities, thereby ensuring immaculate stakeholder experience. Very recently in January 2022, Acuite was certified as “Great Place to Work”. Acuite group is headquartered in Mumbai and operates from minimalistic but functional office spaces. Acuite group currently has 9 offices spread across six Indian cities. During the early days for our efforts to eliminate information asymmetry and facilitate funding for MSMEs, SIDBI was awarded ‘Outstanding Development Project Award’ in SME Development Category by The Association of Development Financing Institutions in Asia and the Pacific (ADFIAP). IFC recognized us as a novel and sustainable initiative of the Government of India, to improve the credit flow to the MSME sector. DFID, UK had sanctioned a Technical Assistance grant under the World Bank ‘Project on SME Financing & Development.
ESGRisk.ai, one of the wholly owned subsidiaries of Acuite and the first ESG rating company of India, is engaging with a lot of domestic & global investors and multilateral bodies to service their ESG ratings, research and training needs.
ES. The macroeconomic scene has deteriorated. How do the macro and micro environments of corporate and economic growth look like?
Sankar Chakraborti. Given the initiation of monetary policy tightening in the developed economies, the projected increase in government borrowings in FY23 and the latest geo-political crisis in Ukraine, the G-sec 10 yr. yields have already shot up to beyond 6.8%. We expect the benchmark yield to touch 7.25% by Mar-23.
India’s Q3 FY22 GDP growth decelerated more than expected to 5.4% YoY from 8.5% in Q2 largely due to a slowdown in the industrial sector post the festive season. While Omicron is set to impact the GDP growth in Q4FY22, we believe such impact has been limited and therefore, our revised GDP growth forecast for FY22 at 9.2% remains slightly higher than that of NSO.
ES. Considering the current scenario, how do you see economy expanding and the investment cycle at some stage to pick up. What about banks’ ability to support growth?
Sankar Chakraborti. While the budget didn’t have any major surprises, it laid a platform for a sustainable capex cycle over the medium term with significant participation from both the public and the private sector. Higher capital investments should structurally push up the medium to long term growth prospects of the Indian economy. It also brought in a slew of policies that should not only induce fresh investments in clean energy, electric vehicles and digitization but take India forward towards its sustainability goals.
The last time non-food credit grew in double digits on a YoY basis was in July 2019. Since then the monthly trend of growth (YoY basis) non-food credit has either been negative or in single digits. However, the deposits mobilisation has seen a steady growth through the same period. Clearly, there is ability of banks to support growth provided there is adequate demand for credit at the appropriate risk-reward pricing.
ES. Shall we see a pick-up in the investment cycle in the current financial year? How is the new investment cycle going to be different from the previous one?
Sankar Chakraborti. The recovery in private investment cycle anticipated in H2 FY23 could turn tentative, owing to the potential uncertainty in domestic demand amidst lurking inflationary pressures from fuel price revisions. IIP granular data already highlights a broader slowdown in rural demand.
Further, downside risks to growth have emerged from possible financial market volatility, as key global central banks normalize monetary policies at a faster pace amidst geopolitics fanning inflation pressures further.
ES. The Indian economy remains on track to regain its position as the world’s fastest-growing major economy after official estimates put the GDP expansion at a tempered 9.2 per cent this fiscal amid concerns over the impact of a resurgent virus on the fragile recovery. What is your growth projection for 2022-23?
Sankar Chakraborti. While Acuité has lowered its growth estimate for FY22 to 9.2%, it is still marginally higher than the average market estimate given our expectation on the pickup in contact intensive services, back loaded government expenditure and the strong vaccination coverage. For FY23, GDP growth is expected to be at 7.5% amidst government’s strong thrust on infrastructure segment highlighted in the Union Budget. This is further supported by the likely recovery in rural consumption and the full play out of pent-up demand, although it is likely to be partly offset by high crude oil prices and higher than expected inflationary pressures arising from geopolitical tensions.
ES. What are your comments on the current scenario of rising petrol and diesel prices?
Sankar Chakraborti. Clearly, the first casualty in any geo-political strife is price stability which has already seen headwinds across the globe. The prolonged pandemic has left deep scars in the global supply chain which is set to get further aggravated by the latest conflict. Given the market share of Russia in the global oil and gas sector as well as the increasing breadth of economic sanctions, the crude oil prices have started to rocket and already breached the levels of USD 120 per barrel. Needless to say, persistently high crude oil prices will have far reaching impact on the domestic macro-economic contours.
The domestic retail fuel prices have started getting revised upwards after a gap of 4.5 months. A significant pass through will start to have an impact on headline CPI inflation which has been supported so far by benign food prices. We believe that the MPC’s forecast of a 4.5% CPI print in FY23 may not be realistic given the emerging ground realities unless we see a quick resolution of the geo-political conflict. Even if the government decides to absorb a large part of the crude price increase through further excise duty cuts, it may lead to a higher than budgeted deficit and consequently, higher borrowings which have already been projected to rise sharply in the next fiscal.
Acuite expects Brent crude to stay around $97 per barrel in Fy23.
ES. How do you perceive trade shows as an economic driver for a country?
Sankar Chakraborti. India’s merchandise trade deficit widened to USD 20.9 bn in Feb-22 from USD 17.4 bn in Jan-22. After the sequential contraction seen in Jan-22 on account of the Omicron wave, both exports and imports rose in Feb-22, with momentum in imports exceeding that of exports. We expect India’s merchandise trade to clock USD 1 trillion in FY22 largely driven by rising global commodity prices with exports touching the target of USD 400 bn set by the commerce ministry.
- While exports are set to exceed government’s target of USD 400 bn in FY22, imports are also poised to exceed USD 600 bn level in FY22, thereby resulting in total merchandise trade crossing USD 1 trillion mark for the first time.
- Merchandise exports moved up just a tad to USD 34.6 bn in Feb-22 from USD 34.5 bn in Jan-22. This translates into a modest increase of 0.2% MoM over the 12.1% sequential contraction seen in Jan-22 on account of Omicron related uncertainty. On the other hand, merchandise imports increased to USD 55.5 bn in Feb-22 from USD 51.9 bn in Jan-22, translating into a higher growth of 6.8% MoM.
- For the eleven months of FY22, cumulative trade deficit stands at USD 176 bn, higher than USD 151 bn deficit seen in the corresponding pre-pandemic period of Fy20.
- Basis the surge in commodity prices since the last week of Feb-22, we now see a minor upside risk (of around USD 2 bn) to our FY22 current account deficit forecast of USD 50 bn.
- Elevated commodity prices, unlocking of the economy, increased vaccination cover and pickup in consumption demand, among others are some of the reasons behind the expected expansion of the trade and current account deficit. For FY23, we project current account deficit to widen towards USD 85 bn assuming an average crude oil (Brent) price of USD 97 per barrel.
ES. Can you share how you have used the crisis as a catalyst and have accelerated the change in a world of accelerated change?
Sankar Chakraborti. We set up a wholly owned subsidiary in the first year, actually in the midst of the global pandemic by incorporating ESGRisk.ai in November 2020. ESGRisk.ai is the first ESG rating company in India. We are encouraged with the response to ESGRisk.ai. Our thought leadership in ESG space was institutionalised with the first edition of ESG India Leadership Awards in early October 2021.
We executed a record number of resolution plan ratings in the fist year of pandemic when a lot of borrowers approached the bankers to restructure the loans and working capital facilities after being adversely impacted by the pandemic. We believe, our resolution plan ratings helped the deserving borrowers and their lenders to tide over the crisis situation brought about by the pandemic even as we adhered to the regulatory norms.We did not let go of a single employee despite the pandemic even when a lot of companies had to rationalise their staffing. On the contrary Acuite kept hiring new employees. We quickly adapted to the “work from home” scenario thrust upon us by the global pandemic and ensured that not a single clients or banker / users got impacted by continuing to offer rating services seamlessly. We could do so by swiftly rolling out an OTP based, digitally signed agreement execution process. Acuite also did not seek or avail of any specific regulatory concession other than what was extended by the regulators themselves in response to the pandemic.
ES. I want to switch topics a little bit and talk about your hobbies. What do you love to do when you are away from work?
Sankar Chakraborti. I like photography. I like gazing stars and planets and have built telescopes. I like to keep myself abreast of technology especially developments that improve efficiency and productivity. I have an interest in well-built, high quality, fast & powerful automobiles. I consider these to be products of marvellous engineering.
ES. Would you like to give out any message to your readers?
Sankar Chakraborti. Acuite is focused on long-term institution building. The path is not easy as the foundation for this is based on value-based principles and business practices. Fundamentally, it is important to have a common, shared understanding of what “conflict of interest” means and this has to be across the length and breadth of the organisation. We believe, such value-based principles and business practices will help employees, organisations and the society at large in the long run as good governance practices will stand any scrutiny and the test of time.