Why TCS and Tata Motors stand to lose from Brazil’s rating downgrade to ‘Junk’ status

Advertisement
Why TCS and Tata Motors stand to lose from Brazil’s rating downgrade to ‘Junk’ status
Advertisement
The downgrading of Brazil’s sovereign rating by US agency Standard & Poor's to "junk" status might hit a dozen of Indian companies that have significant exposure to the Brazilian market.

These companies might see their stocks come under pressure on the bourses due to the weakness in the Brazilian economy.

Moreover the US rating agency said mounting political turmoil and the difficulties faced by President Dilma Rousseff's government in tackling growing debt was the main reason behind the downgrade.

The Indian companies, which have sizeable exposure to the Brazilian market, include United Phosphorous and Torrent Pharma, whose revenue shares from this market go into double digits, besides Glenmark, KEC International, Rallis India, Cadila, Tata Motors, Havells India and TCS.

There are also others like Lupin, Sun Pharma (through Ranbaxy), Godrej Consumers, Bajaj Auto, MM Forgings, Praj Industries (has a Petrobas order) and ONGC, which generate 2-3% of their total revenues from Brazil.
Advertisement


Let’s see what happened after the US rating agency downgraded Brazil:
Ø Stocks of companies with revenue exposure or investment plans in Brazil fell in Thursday's trade. Oil and Natural Gas Corp and Videocon Industries, which have heavy investments in Brazil's oil and gas sector, fell 2.36% and 0.7%, respectively.

Ø Shree Renuka Sugars, which made acquisitions in Brazil recently, fell 1.6%. UPL plunged 4.5%.

Ø Torrent Pharma dropped 3%, Glenmark Pharma fell 1.9%, while Cadila Healthcare was down half a per cent.

Ø Lupin declined 2%, while Sun Pharma was down 0.3%. KEC International slipped 2.3%, while Rallis India was trading flat. Praj Industries and MM Forgings fell 2.6% each.

Advertisement
In April 2008, Brazil was awarded an investment-grade rating by the US rating agency. At that time the country's economy was on rise. However, sliding commodity prices and austerity have created a recession.

Earlier this week, economist said Brazil's Gross Domestic Product is expected to contract by 2.3% and the nation will have to borrow to cover all its interest payments (if interest payments are included, the total deficit this year is projected to be 8-9%).

The faster-than-anticipated downgrade of the nation from investment grade will likely rock Brazilian financial markets and increase borrowing costs for the government and Brazilian companies.

(Image: Indiatimes)