Standard & Poor’s (S&P) rattled the markets when one of its reports, released on Wednesday but dated yesterday, mentioned a ‘significant chance’ of cutting India’s credit rating. The rating agency surprised the Street as the outlook on India has been improving after the reform measures announced by the government in the past month.
The Bombay Stock Exchange’s benchmark index, the 30-share Sensex, dropped 162 points. The currency and bond markets also wilted under pressure. While bond yields went up, the rupee fell below the 53 mark against the dollar.
The sentiment, however, improved and the markets recovered a bit intra-day after S&P quickly clarified it was merely reiterating its stance and had not announced any new information on India’s rating. “Please note that we did not issue or announce anything on India sovereign ratings on Wednesday. We simply published our regular Asia-Pacific sovereign report card, which does not have any new information on India’s rating,” S&P said in an emailed communication.
One of its analysts also came on television channels to say the reform measures had helped in “slightly” revising S&P’s view on India’s rating. “Right now, we do see the government has taken some actions which we didn’t expect initially. To some extent that has helped to revise slightly our views of a credit downgrade,” the analyst said. S&P had in April lowered its outlook on India to negative from stable. The agency’s credit rating for India is currently BBB-, just a notch above junk grade.
| RATING AGENCIES’ TAKE ON INDIA | |||
| MOODY’S | FITCH | STANDARD & POOR’S | |
| Rating action | Maintains stable outlook (June 2012) | Lowers outlook to negative (June 2012) | Lowers outlook to negative (April 2012); Warns of downgrade to ‘non-investment’ grade (June 2012) |
| Pressures | Weak fiscal performance, uncertain policy environment | Limited progress on fiscal consolidation | High fiscal deficit, huge debt burden |
| Strengths | Robust savings rate, competitive private sector | High domestic saving and investment rates, strong forex reserves | High foreign exchange reserves |
| Growth outlook | Below seven per cent in near term | Decline in pace of economic growth | Favourable long-term growth prospects |
“The negative outlook signals at least a one-in-three likelihood of a downgrade of the sovereign rating on India within the next 24 months. A downgrade is likely if the country’s economic growth prospects dim, its external position deteriorates, its political climate worsens, or fiscal reforms slow,” S&P said in its report on Wednesday.
It created some anxiety among investors, even as bankers, economists and analysts played down fears of an immediate cut in India’s credit rating.
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Industry analysts maintained there was no immediate scope for India’s rating downgrade. “My sense is that following the policy measures announced by the government, the chances of a rating downgrade have come down,” said Samiran Chakraborty, economist and regional head of research at Standard Chartered Bank in India.
Bankers echoed a similar view. “The finance minister categorically mentioned there is no fear of a rating downgrade. He told us to get it out of our head. Now, who should we listen to: the finance minister or the rating agency?” a senior banker who attended the meeting between Finance Minister P Chidambaram and foreign institutional investors last week in Mumbai said to Business Standard.