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Mastercard ban, Q1 earnings, and improved credit ratings: Three things Teji Mandi investors should know on July 26, 2021

06:22 PM Jul 26, 2021 | Teji Mandi

Mastercard Ban

The RBI has asked banks to prepare a business continuity plan (BCP) after banning Mastercard. The Central Bank wants to assess the preparedness of banks to shift their business on alternative payments platforms, such as Visa and RuPay.

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A ban on Mastercard will affect those banks that use its platform to issue new credit and debit cards. Their inability to issue debit cards will also impact the account opening process.

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People in the banking circle believe that it could take nearly 3-4 months to complete the migration to Visa or Rupay. And, business activities are likely to stay interrupted for that period.

Lower Base Powers Q1 Earnings

In Q1 results posted so far, the Indian companies have posted double-digit growth in terms of aggregate revenue and net profits. Several companies have indicated a healthy revival of business activities in June after a subdued April and May even in management commentaries. However, their operating margins have taken a hit on expected lines due to higher raw material costs.

The strong earning trend is also boosted by the low base of last year. However, only a few large-cap companies have announced their results in the early part of the season. Earning trends in the broader economy will become more clear as the season progresses.

Sharp Improvement in Credit Ratings

Credit ratings of companies have seen a sharp rise in the June quarter, with rating agencies assigning more upgrades since the beginning of the pandemic early last year.

During the quarter, the credit ratio shot up to 2.08 from 1.7 Jan-March quarter where credit agencies had upgraded 771 companies over 370 downgrades.

It is a remarkable improvement from last year, where the gauge was at 0.36 in the June quarter last year. Rating agencies had 241 upgrades versus 662 downgrades during that period. It is an indication of local companies regaining business normalcy.

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