Credit Rating Project

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CHAPTER 1

1.1 INTRODUCTION

1.2 DEFINITION

1.3 ORIGIN

1.4 CONCEPT

1.5 FUNCTIONS OF CREDIT RATING AGENCIES

1.6 GUIDELINES FOR INDIAN RATING AGENCIES

1.7 CREDIT RATING AGENCIES IN INDIA

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1.1 INTRODUCTION:

With the increasing market orientation of the Indian economy, investors value a systematic

assessment of two types of risks, namely “business risk” arising out of the “open economy”

and linkages between money, capital and foreign exchange markets and “payments risk”.

With a view to protect small investors, who are the main target for unlisted corporate debt

in the form of fixed deposits with companies, credit rating has been made

mandatory.

India was perhaps the first amongst developing countries to set up a credit rating agency in

1988. The function of credit rating was institutionalized when RBI made it mandatory for

the issue of Commercial Paper (CP) and subsequently by SEBI. When it made credit rating

compulsory for certain categories of debentures and debt instruments. In June 1994, RBI

made it mandatory for Non-Banking Financial Companies (NBFCs) to be rated. Credit

rating is optional for Public Sector Undertakings (PSUs) bonds and privately placed non-

convertible debentures upto Rs. 50 million. Fixed deposits of manufacturing companies

also come under the purview of optional credit rating.

1.2 DEFINITION:

A credit rating is a simple number which many lenders use to determine whether or

not they will give a loan or line of credit to an individual. One's credit rating is

impacted by a number of factors, some of which are controllable, others of which

are not.

A published ranking, based on detailed financial analysis by a credit bureau, of

one's financial history, specifically as it relates to one's ability to meet debt

obligations. The highest rating is usually AAA, and the lowest is D. Lenders use

this information to decide whether to approve a loan.

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1.3 ORIGIN:

The following table clearly brings out the history and growth of credit rating agencies the

world over chronologically:

Year Credit rating Agencies

1841 Mercantile credit agency

1900 Moody’s Investors Service

1916 Poor Publishing Company

1922 Standard Statistics Company

1924 Fitch Publishing Company

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1933 Dun &Bradstreet

1941 Standard & Poor

1966 McGraw Hill

1972 Canadian Bond Rating Service

1974 Thomson Bank watch

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1975 Japanese Bond Rating Institute

1975 McCarthy Crisanti & Maffei

1977 Dominician Bond Rating Service

1978 IBCA Limited

1980 Duff and Phelps Credit Rating Company

1987 CRISIL

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1991 ICRA

1994 CARE

1996 Duff and Phelps Credit Rating India (P)

Limited

1.4 CONCEPT OF CREDIT RATING:

Credit rating is the rate of the rating company on the ability and finance position as well

as history finance position to pay off the debts. Credit rating estimates all the finance

position such as assets and liabilities, balance sheets, long terms assets and liabilities,

debt-equity ratio and past of the company to pay the debts. With all these financial

instruments, credit rating company gives the rating to the company of which it is rating

and tell the investors as well as lenders about the financial position with its rating. Like

normally credit rating gives company point 1 to 5 and 5 indicates that company has sound

financially position whereas 1 indicates that company has poor financial position.

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1.5 FUNCTIONS OF CREDIT RATING AGENCIES IN INDIA:

The credit rating agencies in India offer varied services like mutual consulting

services, which comprises of operation up gradation, risk management.

They have special sections to carry on research and development work of the

industries.

They provide training to the employees and executives of the companies for

better management.

They examine the risk involved in a new project, chalk out plans to fight with the

problem successfully and thus ameliorate the percentage of risk to a great extent.

For this they carry on thorough research into the respective industry.

The major industries currently graded by the credit rating agencies include

agriculture, health care industry, infrastructure, and maritime industry.

1.6 GUDELINES FOR CREDIT RATING AGENCIES IN

INDIA:

The Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999

offers various guidelines with regard to the registration and functioning of the credit

rating agencies in India:

The registration procedure includes application for the establishment of a credit

rating agency, matching the eligibility criteria and providing all the details

required.

They have to undergo the strict examination procedure with regard to the details

furnished by them.

They are required to prepare internal procedures, abidance with circulars.

They are offered guidelines regarding the credit rating procedure, by the Act.

The credit rating agencies are provided with compliance officers.

They are required to show their accounting records.

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1.7 CREDIT RATING AGENCIES IN INDIA:

In India, at present, there are four credit Rating Agencies:

Credit Rating and Information Services of India Limited

(CRISIL).

Investment Information and Credit Rating Agency of India

Limited (ICRA).

Credit Analysis and Research Limited (CARE).

Fitch ratings.

1.7.1 CRISIL:

CRISIL was set up in the year 1987 in order to rate the firms and then entered into the

field of assessment service for the banks. Highly skilled members manage the agency.

Ms. Roopa Kudva who acts as the Managing Director and Chief Executive Officer of

the company heads it. The company has set up large number of committees to look

after dispersal of various services offered by the company for example, investor

grievance committee, investment committee, rating committee, allotment committee,

compensation committee and so on. The head office of the company is located at

Mumbai and it has established offices outside India also.

1.7.2 ICRA:

ICRA was established in the year 1991 by the collaboration of financial institutions,

investment companies, and banks. The company has formed the ICRA group together

with its subsidiaries. The company is headed by Mr. Piyush G. Mankad and offers

products like short-term debt schemes, Issue-specific long-term rating and offers fund

based as well as non-fund based facilities to its clients.

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1.7.3 CARE:

CARE is a credit rating and information services company promoted by IDBI jointly

with investment institutions, banks and finance companies. The company commenced

its operations in October 1993. 'In January 1994, CARE commenced publication of

CAREVIEW, a quarterly journal of CARE ratings. In addition to the rationale of

all accepted ratings, CAREVIEW often carries special features of interest to issuers

of debt instruments, investors and other market players.

1.7.4 Fitch Rating:

John Knowles Fitch founded the Fitch Publishing Company in 1913. Fitch published

financial statistics for use in the investment industry via "The Fitch Stock and Bond

Manual" and "The Fitch Bond Book." In 1924, Fitch introduced the AAA through D

rating system that has become the basis for ratings throughout the industry. With

plans to become a full-service global rating agency, in the late 1990s Fitch merged

with IBCA of London, subsidiary of Fimalac, S.A., a French holding company. Fitch

also acquired market competitors Thomson BankWatch and Duff & Phelps Credit

Ratings Co.

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CHAPTER 2

WORLD OF CREDIT RATING

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2.1 Nature of Credit Rating

1. Rating is based on information: Any rating based entirely on published information has

serious limitations and the success of a rating agency will depend, to a great extent, on its ability

to access privileged information. Cooperation

from the issuers as well as their willingness to share even confidential information are important

pre-requisites. The rating agency must keep information of confidential nature possessed during

the rating process, a secret.

2. Many factors affect rating: Rating does not come out of a predetermined mathematical

formula. Final rating is given taking into account the quality of management, corporate strategy,

economic outlook and international environment. To ensure consistency and reliability a number

of qualified professionals are involved in the rating process. The Rating Committee, which

assigns the final rating, consists of specialised financial and credit analysts. Rating agencies also

ensure that the rating process is free from any possible clash of interest.

3. Rating by more than one agency: In the well developed capital markets, debt issues are,

more often than not, rated by more than one agency. And it is only natural that ratings given by

two or more agencies differ from each other e.g., a debt issue, may be rated ‘AA+’ by one

agency and ‘AA’ or ‘AA-’ by another. It will indeed be unusual if one agency assigns a rating of

AA while another gives a ‘BBB’

.

4. Monitoring the already rated issues: A rating is an opinion given on the basis of information

available at particular point of time. Many factors may affect the debt servicing capabilities of

the issuer. It is, therefore, essential that rating agencies monitor all outstanding debt issues rated

by them as part of their investor service. The rating agencies should put issues under close credit

watch and upgrade or downgrade the ratings as per the circumstances after intensive interaction

with the issuers.

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5. Publication of ratings: In India, ratings are undertaken only at the request of the issuers and

only those ratings which are accepted by the issuers are published. Thus, once a rating is

accepted it is published and subsequent changes emerging out of the monitoring by the agency

will be published even if such changes are not found acceptable by the issuers.

2.2 Advantages of Credit Rating

Different benefits accrue from use of rated instruments to different class of investors or the

company. These are explained as under:

A. Benefits to Investors

1. Safety of investments. Credit rating gives an idea in advance to the investors about the

degree of financial strength of the issuer company. Based on rating he decides about the

investment. Highly rated issues gives an assurance to the investors of safety of

Investments and minimizes his risk.

2. Recognition of risk and returns. Credit rating symbols indicate both the returns expected

and the risk attached to a particular issue. It becomes easier for the investor to understand

the worth of the issuer company just by looking at the symbol because the issue is backed

by the financial strength of the company.

3. Freedom of investment decisions. Investors need not seek advise from the stock brokers,

merchant bankers or the portfolio managers before making investments. Investors today

are free and independent to take investment decisions themselves. They base their

decisions on rating symbols attached to a particular security. Each rating symbol assigned

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to a particular investment suggests the creditworthiness of the investment and indicates

the degree of risk involved in it.

4. Wider choice of investments. As it is mandatory to rate debt obligations for every issuer

company, at any particular time, wide range of credit rated instruments are available for

making investment. Depending upon his own ability to bear risk, the investor can make

choice of the securities in which investment is to be made.

5. Dependable credibility of issuer. Absence of any link between the rater and rated firm

ensures dependable credibility of issuer and attracts investors. As rating agency has no

vested interest in issue to be rated, and has no business connections or links with the

Board of Directors. In other words, it operates independent of the issuer company, the

rating given by it is always accepted by the investors.

B. Benefits of Rating to the Company

A company who has got its credit instrument or security rated is benefited as follows;

1. Easy to raise resources. A company with highly rated instrument finds it easy to raise

resources from the public. Even though investors in different sections of the society

understand the degree of risk and uncertainty attached to a particular security but they

still get attracted towards the highly rated instruments.

2. Reduced cost of borrowing. Investors always like to make investments in such

instrument, which ensure safety and easy liquidity rather than high rate of return. A

company can reduce the cost of borrowings by quoting lesser interest on those fixed

deposits or debentures or bonds, which are highly rated.

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3. Reduced cost of public issues. A company with highly rated instruments has to make

least efforts in raising funds through public. It can reduce its expenditure on press and

publicity. Rating facilitates best pricing and timing of issues.

4. Rating builds up image. Companies with highly rated instrument enjoy better goodwill

and corporate image in the eyes of customers, shareholders, investors and creditors.

Customers feel confident of the quality of goods manufactured, shareholders are sure of

high returns, investors feel secured of their investments and creditors are assured of

timely payments of interest and principal.

5. Recognition to unknown companies. Credit rating provides recognition to relatively

unknown companies going for public issues through wide investor base. While entering

into market, investors rely more on the rating grades than on ‘name recognition’.

C. Benefits to Intermediaries

Stock brokers have to make less efforts in persuading their clients to select an investment

proposal of making investment in highly rated instruments. Thus rating enables brokers and other

financial intermediaries to save time, energy costs and manpower in convincing their clients.

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2.2 Disadvantages of Credit Rating

Credit rating suffers from the following limitations

1. Non-disclosure of significant information. Firm being rated may not provide significant

or material information, which is likely to affect the investor’s decision as to investment,

to the investigation team of the credit rating company. Thus any decisions taken in the

absence of such significant information may put investors at a loss.

2. Static study. Rating is a static study of present and past historic data of the company at

one particular point of time. Number of factors including economic, political,

environment, and government policies have direct bearing on the working of a company.

Any changes after the assignment of rating symbols may defeat the very purpose of risk

indicativeness of rating.

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3. Rating is no certificate of soundness. Rating grades by the rating agencies are only an

opinion about the capability of the company to meets its interest obligations. Rating

symbols do not pinpoint towards quality of products or management or staff etc. In other

words rating does not give a certificate of the complete soundness of the company. Users

should form an independent view of the rating symbol.

4. Rating may be biased. Personal bias of the investigating team might affect the quality

of the rating. The companies having lower grade rating do not advertise or use the rating

while raising funds from the public. In such a case the investors cannot get the true

information about the risk involved in the instrument.

2.3 Credit Rating System-Growth Factors:

This section focuses on the ingredients essential for rating system to function effectively, and to

serve the interests of all market participants and regulators.

Fig. 2 (a)

Growth Factors

Capital Market Mechanism Disclosure

Requirements

Credibility and Independence

Credit EducationCreation of

Debt Market

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2.4 Global Credit Rating Agencies:

Name of the

Agency

Home Country Ownership Principal Rating

Areas

Moody’s Investors

Service

USA Dun and Bradstreet Full Service

Fitch Investors

Service

USA Independent Full Service

Canadian Bond

Rating Service

Canada Independent Full Service (Canada)

Japan Bond Rating

Institute

Japan Japan Economic

Jorunal

Full Service (Japan)

Japanese Credit

Rating Agency

Japan Financial Institutions Full Service (Japan)

IBCA Ltd. United Kingdom Independent Financial Institutions

Duff and Phelps

Credit Rating

USA Duff and phelps

Corporation

Full Service

Table 2.1

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2.5 Equtiy Grading:

The rating of equity issues of companies is known as ‘Equity Grading’. The need for

equity grading arises due to following reasons shown in the chart below:

Fig. 2 (b)

Quality of Information

NEED

Wiser Choice

Lack of Benchmark

Lesser-Known Entrepreneurs

Availability of international Rating Agencies

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2.6 Flow Chart of CRISIL’s Rating Process

Fig. 2 ©

CRISILBorrower/Issuer

Assigns analytical team, conducts basic

researchRequest for a Rating

Collection of Information

Documentation Preparation

Appeal

Annual Review

Publication of rating

Communication of rating to Issuers

Rating Committee assign rating

Plan visit followed by Management meetings

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2.7 IPO Grading:

2.7.1 What is IPO grading?

It is a service aimed at facilitating the assessment of equity issues offered to public.such

grading is assignd on a 5 point scale with a higher score indicating stronger fundamentals.

2.7.2 How is IPO grading different from an investment recommendation?

Expressed as ‘buy’, ‘hold’ or ‘sell’ and are based on a specific comparisionof its assessed

‘fundamental factors’.

Expressed on a 5 point scale.

Does not take cognizance of the price of security.

2.7.3 What is the requirement for IPO grading?

Role in investor protection.

It is positioned as a service that provides ‘an independent assessment’ would prove useful

as an investment tool for investors.

2.7.4 How will IPO grading meet this requirement?

It represents a relative assessment of the ‘fundamentals’.

As a tool to make investment decision.

Help investor.

It is an additional investor information and investment guidance tool.

2.7.5 Who will carry out IPO grading?

ICRA, being one of the four agencies registered with SEBI.

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2.7.6 Does SEBI have a role in the grading exercise?

No, it does not play any role.

2.7.7 Is this IPO grading mandatory?

No, its optional.

2.7.8 How would the grading be indicated?

Grades Particulars

5 Strong fundamentals

4 Above average fundamentals

3 Average fundamentals

2 Below fundamentals

1 Poor fundamentals

Table 2.2

2.7.9 For how long would the assigned grade be valid?

It would be one time assessment done at the time of IPO.

The grade will not have any ongoing validity.

2.7.10 How can a company get its IPO graded?

Seek information for the grading from the company.

On receipt of required information, have discussions with the company’s management.

Analytical report.

Present the analysis.

Communicate the grades.

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CHAPTER 3

LITERATURE REVIEW

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http://www.unibg.it/dati/bacheca/530/36104.pdf

The authors thank officers of Securities and Exchange Board of India (SEBI), Vidhu Shekhar and

Sunil Gawde (National Stock Exchange of India), Saurabh Vijayvergia, Abhishek Goel and Aseem

Goel (DSP Merrill Lynch), Kaushal Shah and Prateek Diwan (Kotak Investment Banking), Arun

Panicker (CRISIL), Prithvi Haldea (PRIME Database) and M.T. Raju (Indian Institute of Capital

Markets) for their help with details of the institutional features of the Indian IPOs. Alok Pande wishes

to acknowledge the financial support received from the University of Bergamo.

Literature Review (1)

While debt grading is a universally pervasive concept in the world of finance, equity grading is a

relatively unknown concept which has not been tried anywhere, to the best of our knowledge. In this

paper, we analyze the possibly first application of equity grading. A number of agencies in the private

domain carry out equity ratings and provide buy, hold, sell recommendations to investors. However a

Grade which just signifies the “fundamentals” of the firm with respect to the listed peers without any

investment recommendation and is carried out compulsorily, by an independent agency, is a unique

feature of the Indian regulatory set up. In India, the Initial Public Offerings (IPOs) coming to the market

are compulsorily graded on a scale of 1 to 5 by regulation with 1 signifying poor fundamentals and 5

signifying very strong fundamentals. The rating agencies in India claim that the grade is not a

recommendation on the “price” of the IPO or a buy, hold, sell recommendation. We try to find out

whether this unique concept of grading adds any value to the issuers, investors and the regulators for

book built IPOs.

Historically, India was a regulated economy and there were no Institutional players in the capital

markets. This was because the economy was tightly controlled by the Government and there was little

incentive for the private sector to set up banks, mutual funds and other financial institutions. In such a

scenario, the retail investors were the only source of funds for firms who wanted to go public. Gradually

as the economy liberalized, and the Institutional players became important, there were some

compulsory allocations to be made to Institutional players. However the retail investors continued to

receive the attention of the regulators in terms of protection of their interests.

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Literature Review (2)

Certification-backed IPOs are those that are perceived to be of better quality due to the reputation of

the certifier or the certification strategy in question. This certification can come in many forms,

including a good track record of the company before the IPO, the use of a reputable underwriter,

venture capital backing, group affiliation, institutional backing, and analysts’ following, among

others. However, the previous theoretical literature suggests that the pricing of certification-backed

IPOs can go either way. Chemmanur and Fulghieri (1999) suggest that investors incur a lower cost of

information accumulation if an IPO has some backing that signals better quality. However, Allen and

Faulhaber (1989), Grinblatt and Hwang (1989), Welch (1989), and Chemmanur (1993) suggest that

underpricing should be greater for higher quality IPOs as they use underpricing as a signalling cost to

drive low-quality issuers out of the market. Barry, Muscarella and Vetsuypens (1990) and Megginson

and Weiss (1991) find that underpricing is lower for IPOs of firms with a strong venture capital

participation than for those without such investors. These results are consistent with the assumption

of cost of information accumulation borne by investors. In contradiction to these findings, Lee and

Wahal (2004), based on a somewhat larger sample, over a longer time period, uses a more robust

statistical methodology to find higher underpricing in venture-backed IPOs. These authors explain

that the contradiction between the two conclusions could be the result of incentives received by

venture capitalists from investment bankers to leave more money on the table. This may happen in

exchange for preferential allocation by investment bankers involved in other underpriced IPOs to the

venture capitalists. Loughran and Ritter (2002) also reach a similar conclusion.

There is evidence, some of it mixed, regarding underwriter reputation and its effect on IPO

performance. Beatty and Ritter (1986), Titman and Trueman (1986), Masksimovic and Unal (1993)

and Cater, Dark and Singh (1998) find that the under-pricing of IPOs brought to the market by

reputable underwriters is lower than those brought by non-reputable underwriters. The evidence

holds both on a short term and a long-term basis. Rajan and Servaes (1997) find that, in the long run,

IPOs have better stock performance when analysts predict low growth potential rather than high

growth potential before the offering. Chemmanur and Paeglis (2005) test the certification hypothesis

by using management quality as a proxy for certification. They find that good management quality is

negatively related to the extent of underpricing.

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(3) Basudev Sen21 (1997) ( http://shodhganga.inflibnet.ac.in/bitstream/10603/274/9/09_chapter%203.pdf

as on 17th oct, 2011) disclosed the implications of risk management in the changed environment and

the factors constraining the speed of risk management technology up-gradation. He opined that the

perception and management of risk is crucial for players and regulators in a market oriented economy.

Investment managers have started upgrading their risk management practices and systems. They have

strengthened the internal control systems including internal audit and they are increasingly using equity

research of better quality. He observed that risk measurement and estimation problems constraint the

speed of up-gradation. Also, inadequate availability of skills in using quantitative risk management

models and lack of risk hedging investments for the domestic investors are major constraints. He

concluded that with the beginning of derivative market, new instruments of risk hedging would become

available.

(4) Avijit Banerjee28 (1998)( http://shodhganga.inflibnet.ac.in/bitstream/10603/274/9/09_chapter%203.pdf

as on 17th oct, 2011) reviewed Fundamental Analysis and Technical Analysis to analyse the worthiness

of the individual securities needed to be acquired for portfolio construction. The Fundamental Analysis

aims to compare the Intrinsic Value (I..V) with the prevailing market price (M.P) and to take decisions

whether to buy, sell or hold the investments. The fundamentals of the economy, industry and company

determine the value of a security. If the 1.V is greater than the M.P., the stock is under priced and

should be purchased. He observed that the Fundamental Analysis could never forecast the M.P. of a

stock at any particular point of time. Technical Analysis removes this weakness. Technical Analysis

detects the most appropriate time to buy or sell the stock. It aims to avoid the pitfalls of wrong timing in

the investment decisions. He also stated that the modern portfolio literature suggests 'beta' value p as

the most acceptable measure of risk of scrip. The securities having low P should be selected for

constructing a portfolio in order to minimize the risks.

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(5) CRISIL Report on Risk Management42 (2000)

(http://shodhganga.inflibnet.ac.in/bitstream/10603/274/9/09_chapter%203.pdf as on 17th oct, 2011)stated

that the loss potential from market risk will increase in the absence of strong risk management tools.

The banks which adopt a pro-active approach to upgrading risk management skills which are currently

unsophisticated as compared to internationally best practices, would have a competitive edge in future.

The report commented that in the increasingly deregulated and competitive environment, the risk

management strategies of banks would hold the key to differentiation in their credit worthiness.

(6) Literature Review

Credit ratings reduce information asymmetry in the financial markets by disseminating important information about firmvalue to uninformed investors. Sufi (in press) shows that borrowers who obtain syndicated loan ratings by Moody's and Standard & Poor's gain access to the capital of less-informed investors, and they are able to raise more funds in debt financing. Consistent with the notion that credit ratings reduce information asymmetry between the lead arranger and participant lenders in the original syndication, Sufi (2007) finds that lead bank has to retain a larger share of the loan when the borrowing firms do not have credit ratings. In contrast, when the borrowers have credit ratings, the syndicate loans are dispersed among more loan participants. Faulkender and Petersen (2006) show that credit ratings reduce the credit constraints faced by public firms by enabling firms with ratings to raise more debt. Boot et al. (2006) provide a rationale for credit ratings and show in their model that credit ratings serve as a focal point in that all investors rationally base their investment and pricing decisions on the rating. The objective of this paper is to examine the effects of credit ratings on IPO pricing. We extend the work of Liu and Malatesta (2006) from the SEO to the IPO markets. Specifically,we investigate whether credit ratings can significantly lower the magnitude of IPO underpricing and price revision by reducing the value uncertainty about the issuing firm, as well as the information asymmetry among the players in the IPO markets.

A large volume of literature has shown the existence of IPO underpricing, starting from Logue (1973), Ibbotson (1975), Ritter(1984), among others. In general, the literature suggests that many companies leave substantial money on the table when they go public. The shares offered to investors are underpriced compared to the closing price on the first trading day. According to Ljungqvist (2007), the average IPO underpricing has been about 19% in the U.S. since the 1960s.3 3 http://people.usd.edu/~Hunter.An/papers/JCF_IPO.pdf Ritter and Welch (2002) and Ljungqvist (2007) offer comprehensive reviews of the IPO literature.

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CHAPTER 4

RESEARCHMETHODOLOGY

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RESEARCH METHODOLOGY

RESEARCH METHODOLOGY

Research Methodology plays an important role in the process of marketing. Starting

with market component of the total marketing talks, it helps the firm to acquire the better

understanding of the consumers, the competition and the marketing environment.

DATA SOURCE

Primary Data

In primary data the information is obtained from the original source by the researcher.

Here, information needed is related to the “Assignment of Ranking on IPO and Equity”

Secondary Data

In secondary data the information is obtained from the other sources such as magazines,

Newspapers, Journals, Internet, Literature etc. Here the various information is obtained from

such sources so it is secondary data source.

RESEARCH ON

The research is conducted to know people preferences on Credit Rating and their importance.

JUSTIFICATION FOR THE RESEARCH

This study will helpful to know about the importance of Credit Rating and its assignment on IPO

and Equity shares.

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RESEARCH DESIGN

Descriptive Studies:

The descriptive research design has been used because it described the phenomena under the

study and recommendations were specific under this study.

Descriptive studies are undertaken in many circumstances. When the researcher is interested in

knowing the characteristics of certain groups such as age, sex, occupation, income, attitude

towards investments etc a descriptive study may be necessary.

Sampling Design:

Research Approach: Survey

Research Instrument: Questionnaire

Population: Ahmedabad city

Sampling Procedure: Convenience based sampling

Contact Method: Personal interview method

Data Source: Primary data

Sample Size: 40 sample of customer

Confidence Level: 95%

As per the calculation and taking help of sample size calculator the researchers had taken

sample size of 40.

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CHAPTER 5

DATA ANALYSIS

AND

DATA INTERPRETATION

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(1) Based on Sex: Male or Female

5(a)

The research based on sex ratio and under which more preference is given to males as

compared to females but it is worth to know that female investors are also increasing

day by day.

0

5

10

15

20

25

Male Female

Total

(2)Aware of the Credit Rating

It is known that more people should be aware of the term Credit rating so that

they can avail benefit from such services and increase the earnings to a certain

extent by making proper search on it.

0

5

10

15

20

25

Yes

Aware of the Credit Rating

5 (b)



extent by making proper search on it.

No

Aware

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Aware

(3) Credit Rating Agencies in India

It can be concluded that people to the great extent are knowing about the Credit

Rating agencies identity and from those who are knowing of such agencies are

equipped with more than one agencies and for those knowing only one rating

agency is CRISIL.

45%

Credit Rating Agencies in India

5 ©




12%

43%

Number

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One

More than one

None

(4) Rating of IPO

People are availing rating of IPO while making investments in new issue but such

people are not to a large extent hence more people should be make aware of

such services so that one can secure its hard earned earnings.

0

5

10

15

20

25

Yes

5(d)



such services so that one can secure its hard earned earnings.

No

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Total

(5) Equity Grading Knowledge

From the research it can be known that most of the people are not knowing of

about equity grading and it is surprised to know that even to those who are

regular players of market are not knowing about equity grading on a large

0

5

10

15

20

25

30

Number

Axis

Titl

e

Grading Knowledge

5 (e)



regular players of market are not knowing about equity grading on a large

Yes No29 11

Number

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regular players of market are not knowing about equity grading on a large scale.

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CHAPTER 6

FINDINGS

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FINDINGS:

People are not aware about the term Credit Rating to a great

number.

Some people are not having any idea about the term credit rating

and those who are knowing it are not aware about the rating

agencies operating in India.

Most of people used to take ratings into consideration only at the

time of IPOs while ratings on other instruments are avoided to a

great extent.

People to a great extent are not aware about the equity grading

and it was surprising for the researchers that those who are

regular investors are also not aware of the term Equity grading.

Ratings are taken into consideration at the time of IPOs by the

investors most of the time while equity used to get second

preference compared to Preference shares and Debt instruments.

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Bibliography:

Literature review of credit rating on IPO

http://people.usd.edu/~Hunter.An/papers/JCF_IPO.pdf

<Accessed as on 17th October, 2011>

DEFINITION

http://www.investorwords.com/1209/credit_rating.html#ixzz1b2fjdNuO


Fitch rating

http://www.investopedia.com/articles/bonds/09/history-credit-rating- agencies.asp#ixzz1b2yDeUvf


CARE

http://www.egyankosh.ac.in/bitstream/123456789/25902/1/Unit13.pdf


Concept

http://freeworking.hubpages.com/hub/ALL-ABOUT-CREDIT-RATING

<Accessed as on 21st October, 2011>

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CRISIL, ICRA

http://business.mapsofindia.com/finance-commission/institutions/credit-rating-agencies.html

<Accessed as on 23rd October, 2011>

Miscellaneous

http://www.unibg.it/dati/bacheca/530/36104.pdf

http://www.efmaefm.org/0EFMAMEETINGS/EFMA%20ANNUAL%20MEETINGS/2009-milan/492.pdf

http://shodhganga.inflibnet.ac.in/bitstream/10603/274/9/09_chapter%203.pdf


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QUESSTIONNAIRE

(1) Name: _____________________________________________________

(2) Sex: Male / Female

(3) Are you aware of the term Credit Rating?

YES / NO

(4) How many Credit rating agencies is known by you?

One

More than One

None

(5) Do you take into consideration ratings assigned by rating agencies?

YES / NO

(6) During IPO do you look after the ratings assigned by agencies?

YES / NO

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(7) Are you aware about Equity grading?

YES / NO

(8) While making investments in different instruments give your preference that you take into consideration of ratings assigned by agencies?

(Give preference from 1 to 4, where 1= Highest and 4= Least Important)

IPO

Debentures

Preference shares

Equity shares

(9) How do you rate the system of credit rating?

(Select any one from following)

Excellent

Very Good

Good

Fair

Poor

Credit Rating Project

Documents

Transcript of Credit Rating Project