How Credit Ratings Work and Why They Move Stock and Bond Prices

For several years, Tata Motors' ratings from major global agencies remained below investment grade. The demerger became effective October 1, 2025. The entity retaining the Tata Motors name became the commercial vehicle business, while the passenger vehicle/JLR business became Tata Motors Passenger Vehicles.

Following the October 2025 demerger, S&P assigned a BBB/Stable rating to the Tata Motors entity retaining the commercial vehicle business.

A single letter changed, and with it who can lend to the company and how much it pays to borrow. This guide is about what that letter means for you as an investor: what a rating tells you, where to find it, when to check it, and how a change should shape your decision to buy, hold or sell.

Think of a credit rating as a CIBIL score for companies. It answers one question: how likely is this borrower to repay this particular debt, in full and on time? It says nothing about whether a share is cheap or a business is exciting.

Indian agencies such as CRISIL, ICRA, CARE Ratings and India Ratings use the same scale. In simple terms:

• AAA and AA: very high safety. CRISIL's latest default study reported a 0% three-year default rate for CRISIL AAA-rated long-term instruments for the FY21–FY25 period.

• A and BBB: adequate to moderate safety. BBB- is the lowest rung of investment grade.

• BB and below: speculative, often called junk. Higher interest, because the risk of not being repaid is higher.

• D: the borrower has already defaulted.

What it means depends on what you own. If you hold a company's bond, NCD or fixed deposit, the rating is directly about whether you get your money back. If you own a debt fund, the ratings of what the fund holds decide how risky your fund is. If you own the company's shares, the rating is an indirect signal about financial strength and what the company pays to borrow, which in turn affects its profits.

In August 2016, S&P raised Tata Motors to BB+, just one notch below investment grade. Then Jaguar Land Rover's profits weakened. By July 2019 Fitch had cut the company to BB- with a negative outlook, and by 2023 Moody's rated it B1, four notches below the line.

The climb back came from cutting debt. Moody's upgraded it to Ba3 in November 2023 and jumped two notches to Ba1 in August 2024, saying the company was moving towards investment grade. S&P's BBB followed in November 2025. The lesson for investors is simple: ratings are not permanent labels. They follow the balance sheet, in both directions.

All of this information is free. Five places cover almost everything:

• The rating agency's website: search the company's name on the CRISIL, ICRA, CARE or India Ratings site. Every rating comes with a free note, called a rationale, explaining the reasons behind it.

• Stock exchange announcements: listed companies must tell NSE and BSE when a rating is revised, so check the company's announcements page.

• The annual report: the corporate governance section lists the company's current credit ratings and any changes during the year.

• Your debt fund's monthly portfolio: fund houses publish every holding with its rating at least once a month, on their website and in the factsheet.

• The offer document or platform: bonds, NCDs and company fixed deposits show their rating when offered, including on SEBI-registered online bond platforms.

• Before you lend money: any bond, NCD, company fixed deposit or credit risk fund. Here the rating is your first filter.

• Before buying shares in a company that borrows heavily: real estate, infrastructure, telecom, metals and finance companies live and die by their cost of debt.

• Every quarter, with results: for companies you own that carry significant debt, a quick look takes five minutes.

• When big news breaks: a large acquisition, fresh borrowing, a management exit or an accounting issue often leads to a rating review.

• When the outlook changes: this is usually the earliest warning, arriving before the rating itself moves.

Not every rating action carries the same weight. Four terms tell you how seriously to take it.

An outlook of positive, stable or negative shows the likely direction over the next one to two years. A rating watch is more urgent and short term, tied to a specific event the agency is still assessing. A sharp rating action, a significant multi-notch change, deserves immediate attention because it signals a material reassessment of credit risk. And Issuer Not Cooperating means the company has stopped sharing information with the agency, which is a warning sign in itself.

Where the rating sits matters as much as how far it moves. A move from AA+ to AA is a small step within safe territory. A move from BBB- to BB+ crosses into junk, and many insurers, pension funds and debt funds can then no longer buy the company's bonds, while some must sell what they hold.

A rating is one input, not an instruction. How much weight it deserves depends on what you own.

If you hold a bond, NCD or company deposit, a downgrade usually lowers its market price at once, because buyers want a higher return for more risk. On a five-year bond paying 8%, a downgrade that pushes the required return to 9% cuts its value from Rs. 1,000 to about Rs. 961. If you plan to hold to maturity, the price matters less than whether the company can still repay, so read the rationale and focus on its cash flow and debt. Upgrades work the other way and lift the price.

If you own a debt fund, check whether the downgraded paper is a large or small part of the fund. A small holding in a well-spread fund is very different from a large bet on one borrower.

If you are thinking of buying a stock, remember that share prices usually move before agencies do, because markets react to results and news as they happen. An upgrade often confirms improvement that is already in the price, while a positive outlook can be an earlier signal worth studying.

If you already own the stock, the change matters most for companies that depend heavily on borrowed money. Before deciding to hold or exit, ask three questions:

• Why did it change? The rationale explains whether this is a temporary setback or a lasting weakness.

• Does it change the company's access to money? A higher cost of borrowing, or losing lenders who can only hold investment grade, can squeeze profits for years.

• How big and how far is the move? One notch within investment grade rarely changes a long-term view. A sharp cut, a slide towards junk or an Issuer Not Cooperating tag calls for an immediate review of why you own it.

India itself is rated BBB by S&P, yet many Indian companies are AAA with CRISIL or ICRA. Indian agencies rank borrowers against each other within India, while global agencies compare them with the whole world and rarely rate a company above its home country. Both ratings are correct. They simply measure against different benchmarks.

For a bond or deposit holder, a rating is about getting your money back. For a shareholder, it is a signal about financial strength and the cost of borrowing. Check it before you lend, before you buy into a heavily indebted company, and whenever the outlook or big news changes the picture.

A rating tells you the odds of being repaid, not whether a company is a good investment. Know where to find it, read why it changed, and let it inform your decision rather than make it for you.

[1] SEBI (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2026, Notification No. SEBI/LAD-NRO/GN/2026/299 dated 16 March 2026: draft abridged prospectus at the DRHP stage, standardised Part E format, removal of the Summary of the Offer Document, QR code and link on application forms, and non-transferability of pledged pre-issue shares during lock-in.

[2] SEBI (ICDR) amendment notified 31 October 2025, effective 30 November 2025: anchor reservation raised to 40%, comprising 33% for mutual funds and 7% for life insurers and pension funds.

[3] Securities Contracts (Regulation) Amendment Rules, 2026, G.S.R. 184(E), notified 13 March 2026, substituting Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957: graded minimum public offer, including Rs. 15,000 crore and 1% above Rs. 5 lakh crore with a 2.5% floor, and extended minimum public shareholding timelines.

[4] SEBI (ICDR) (Amendment) Regulations, 2025, No. SEBI/LAD-NRO/GN/2025/233, notified March 2025: SME eligibility, offer for sale limits and minimum application of two lots above Rs. 2 lakh. SEBI press release on the board meeting of 19 June 2026 approving a review of the SME fundraising framework.

[5] SEBI (ICDR) (Third Amendment) Regulations, August 2021: promoter lock-in of 18 months, three years where the majority of fresh issue proceeds are for capital expenditure, and six months for most other pre-issue shareholders. SEBI board decisions of December 2021 and ICDR amendments of January 2022: anchor lock-in of 30 and 90 days, and caps of 25% on general corporate purposes and 35% including unidentified acquisitions.

Disclaimer: 

Adroit Financial Services Private Limited (hereinafter referred to as "Adroit"), Registered Address: F-912, Titenium City Center, Nr. Sachin Towers, 100 Feet Ring Road, Anand Nagar, Manekbag, Ahmedabad, Ahmadabad City, Gujarat, India, 380015.
Correspondence Address: 401-402, Fourth Floor, Angel Mega Mall, Plot No. CK1, Kaushambi, Ghaziabad, Uttar Pradesh, India, 201010.

Registration Numbers: CIN: U74899GJ1994PTC128736 | SEBI Registration Numbers: NSE, BSE, MCX & NCDEX: INZ000173137 |Member Code: BSE-3034, NSE- 08538, MCX- 56790 & NCDEX- 01302 | DP- NSDL/CDSL- IN-DP-551-2021 | Research Analyst: INH100003084 | Portfolio Management Services (PMS): INP000005349 | Mutual Fund: ARN- 30091.

Standard Disclaimer: Investments in the securities market are subject to market risk, read all the related documents carefully before investing. This is for educational purposes and does not provide any advice/tips on Investment or recommend buying and selling of any stock. Adroit or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing/ dealing in securities Market. Adroit or its associates/analyst has not received any compensation/ managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Neither Adroit, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Adroit Financial Services Private Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.
Margin Trading Funding (MTF) is subject to provisions of SEBI circular
CIR/MRD/DP/54/2017 dated June 13,2017 and the terms and conditions mentioned in the rights and obligations statement issued by Adroit Financial Services Private Limited.

Read More On: www.adroitfinancial.com