The lowering of outlook from stable (BBB+) to negative (BBB-) is expected to make external commercial borrowings expensive for Indian Inc. It may also have implications for the capital market.
"The outlook revision reflects our view of at least a one-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish or progress on fiscal reforms remains slow in a weakened political setting" said S & P's credit analyst Takahira Ogawa in a statement.
BBB- is the lowest investment grade rating.
Commenting on the rating action, Jagannadham Thunuguntla, strategist and head of research at SMC Global Securities, said
"Indian (new) sovereign rating is just one step away from junk bond status...Somehow I feel the dream of India growth story is coming to an end".
The negative outlook, the rating agency further said, signals likelihood of the downgrade of India's sovereign within the next 24 months. "A downgrade is likely if the country's economic growth prospects is dim, its external position deteriorates, its political climate worsens, or fiscal reforms slow", it said.
The lowering of rating outlook comes despite Finance Ministry pitching for an upgrade at the recent round of meetings between the officials and representatives of the S&P. MORE PTI RMI NKD CS