In terms of debt issued, there was virtually a 40 per cent decline in private placement of debt in the first nine months of 2003-04. This comes on the back of a near 15 per cent drop in private placement of debt in 2002-03.

The RBI's regulation that banks can invest in listed securities only also had a dampening effect on debt issuance. This has led to a near 33 per cent decline in operating profits of ratings business in the third quarter.

Crisil's performance in the fourth quarter ended March 2004 may not be as depressing as that of third quarter but could remain muted. This is because there are no indications that the volume of debt issued has picked up although the scene is not as bad as it was in the third quarter. The election scene also means that growth in the advisory business will continue to be difficult.

Long-term story

A price-earnings multiple of 18 times clearly shows that investors must have the ability to hold for more than five years for the investment to deliver returns. Investments in Crisil are, however, anyway a long-term story. The credit ratings business can grow to substantially higher levels from here. In particular, securitisation of debt and issuance of debt by municipal corporations could grow significantly. The advisory business also appears promising after the acquisition of Economatters.

In this context, it is possible for Crisil to repeat its performance of a 20 per cent annual growth in profits between 1994 and 2003. That should be enough to deliver capital appreciation even from its present price levels if the holding period is long.

It would be a good idea to accumulate Crisil at these levels but for the risk posed by the announcement of a poor fourth quarter performance. Investors can wait now with the understanding that this mid-cap stock would suit any investor's portfolio.

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