Sovereign downgrade risk still on table for India : DBS

 

The weak rupee, along with slow growth, deterioration in the current account, and the likelihood of fiscal worries could revive sovereign ratings downgrade risks for the country, DBS says in a note.

 

DBS notes the country's forex reserves continue to contract. The total foreign exchange reserves as a%age of total external debt, now stands at 74.8% versus 85.2 last year.

 

The bank notes rebuilding of the foreign exchange reserves will remain a challenging task in the current environment with exports remaining on the backfoot.

 

"Even as stability might return after the schedule and pace of the US Fed tapering exercise becomes known, there is limited headroom for the rupee on domestic pitfalls," the note adds.

 

DBS says Moody's which was the only rating agency to have not cut its outlook on India's credit rating last year has now explicitly sounded a word of caution.

 

Fitch last month returned the outlook on India's credit rating to "stable" from "negative" after having lowered it in mid 2012 while S&P continues to have a negative outlook on India's rating, which is the lowest investment grade.