Rating rider hits PF investment in true-blue corporates

Provident funds (PFs) willing to invest five per cent of their incremental inflows in the equity markets will not be able to make investment in corporate giants such as Infosys, Wipro, Hindustan Lever, TCS, Procter & Gamble and Colgate, thanks to the norms of PF investment in equity markets.

This is a fallout of the norms that stipulate that the PFs may invest five per cent of their incremental inflows in the companies which have credit rating from at least two agencies.

Fund-flush domestic companies as well as Indian subsidiaries of MNCs rarely borrow from the market and therefore, have no rating.

Birla Mutual Fund chief executive officer S V Prasad said, "Firstly, the idea of asking the PFs to invest in equities is wrong. Secondly, even if you can find companies having ratings, you bear it in mind that the ratings are for their borrowing instruments and for the companies," he added.

Rating of a company and rating of a particular borrowing instrument are different. A good rating of a particular programme of a company does not necessarily ensure that the same entity will get the same rating for another instrument.

For example, a company's rating for a Rs 100 crore borrowing programme and a Rs 500 crore instrument may differ, depending on its repayment capacity, said an executive of a rating agency.

Rating agency Icra's managing director P K Choudhury said although rating agencies take an overall view of the company while rating a particular instrument, it cannot give blanket rating of the company. The overall rating of a company is common in many countries but not in India, he added.

However, Icra has found a solution for those wanting to get overall rating.

Choudhury said the agency has recently launched issuer rating, a blanket rating of a company, but no one has been awarded this so far. He said this rating will make a company eligible to get PF investments in its equities.