»5 Minute Wrap Up by Equitymaster

On This Day - 19 FEBRUARY 2020
When Moody's Downgrades India's GDP... It's Time to Buy Stocks!

Editor's Note: Dear reader, I'm sure you've heard about Moody's cutting India's GDP growth forecast. The market was down yesterday, in part, due to that. I have a simple recommendation for you - Ignore it.

You see, back in November last year, the same Moody's had cut India's rating. This is the editorial I wrote to you at that time. In simple words, I said - Buy Indian stocks! I'm sharing piece this with you today because it's very important for you to ignore these rating agencies when you make your investment decisions in the stock market. Read on...


Tanushree Banerjee, Editor, The 5 Minute Wrapup

My views on the credibility of rating agencies, especially the global ones, is no secret.

I wrote to you about how poorly the insiders at Moody's rate their rating approach back in 2009. And again in 2015.

In an interview, Moody's former Managing Director, Jerome Fons, had called the rating agencies - Standard & Poor's and Moody's - as worthless and worth ignoring.

But even years after subprime crisis unfolded in 2008, regulators and investors all over the world continue to rely on these rating agencies.

Mr Fons is not the only one who is appalled at this situation. I am too and many others like me.

Nevertheless, the views of the big rating agencies, continue to find takers. Unfortunately, they are typically too late to signal either a downside or an upside.

You can find the latest example of this in today's papers. Moody's downgraded India's rating from stable to negative.

Ironically, if you track Moody's record of rating downgrades you'll find it works like a 'inflection' indicator.

Think of it as the Cocktail Party Indicator. When everyone at a cocktail party shares stock tips with you, it signals a bursting of a bubble.

Similarly, the Moody's indicator, is typically very late to caution on risks. So late in fact, that now it is time to look forward to the upside.

Investors who take Moody's downgrade of India too seriously, will either suffer losses or miss the bus on the upside.

If you don't believe me, take a look at this chart.

What do you see?

Terrible Track Record of Rating Downgrades

Every time, Moody's has slashed India's rating below the 'stable' category, the economy has bottomed out.

And a stock market boom followed.

So, smart investors who bought stocks after Moody's rating downgrade in 1992 and 2002, created life-changing wealth for themselves.

You need to do the same today.

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Take advantage of the negativity in the stock market and buy the best stocks that are poised to ride India's economic recovery.

The Moody's rating downgrade will not affect the Rebirth of India at all.

It will also not affect my pick of the 7 best stocks in the market.

The ratings downgrade could only serve my readers, like you, to buy these stocks at valuations that are favourable.

And don't be in a hurry to see markets soar.

Stay assured that the Moody's rating downgrade is a final indicator of an inflection in India's economic and stock market potential.

It is a sign to buy.

What do you think of Moody's GDP downgrade? Share your view here.

Warm regards,

Tanushree Banerjee
Tanushree Banerjee
Editor, The 5 Minute WrapUp
Equitymaster Agora Research Private Limited (Research Analyst)

PS: On Tuesday, 25 February at 10 AM sharp, I will reveal details of the Greatest Money-Making Opportunity very few Indians know about! Get the details of this event here.

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