It is too premature for S&P to do it now. These issues were in place already. S&P is very reactive but Moody’s is balanced,” State Bank of India (SBI) economic research head Brinda Jagirdas told reporters
Mumbai: Analysts and economists on Wednesday termed Standard & Poor’s (S&P) decision to lower the country’s rating outlook close to junk status (BBB-) as “reactionary and out of context”, saying there has been “no immediate trigger”.
“It is not warranted at all now, though concerns remain.
It is too premature for S&P to do it now. These issues were in place already. S&P is very reactive but Moody’s is balanced,” State Bank of India (SBI) economic research head Brinda Jagirdas told PTI.
Terming the action as “not a downgrade but only highlights the already existing concerns” which the government is seized of, she said these concerns were known and did not warrant a change in the outlook. “There is no trigger for S&P to do it now. So I would say this is only a reactive action.”
S&P on Wednesday cut its India outlook to negative from stable and warned of a sovereign downgrade in two years if the fiscal and current account situations do not improve and the political climate continues to worsen.
“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 credit analyst Takahira Ogawa.
BBB- is the lowest investment grade rating.
“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,” the agency said.
But Ms Jagirdas said the move will not have any impact on the cost of funds for either the banks or the corporates.
Pointing out that “the country has good savings and investment rates”, she said “our fiscal deficit is much better than most of the European economies”
However, Ms Jagirdas admitted that negative rating outlook clearly points to urgency of the need for immediate government steps to reignite growth, and to bring down subsidies and current account deficit.
Nomura India also ruled out possibility of a real downgrade, considering the steps the government is taking on the flagged concerns.
“We believe there is a low likelihood of a rating downgrade actually occurring as we expect the economy to see some cyclical rebound in the near term, the debt-to-GDP ratio is likely to remain stable, and the fiscal deficit should not worsen substantially. The only risk to this view is forex reserves declining materially,” Nomura economist Sonal Varma said.
A Deutsche Bank report said if growth recovers somewhat and inflation does not soar again, the lack of structural improvement in the fiscal position need not be an immediate spoiler of the ratings outlook.
“Our central scenario is that conditions do not deteriorate to the extent to warrant negative ratings action this year. But the risks are clearly not trivial,” the report concluded.
However, Yes Bank chief economist Shubhada Rao said she does not expect S&P move leading to a downgrade.
“There will be no expeditious action on that front.
However, I think, the S&P move will galvanise government action on the pain points soon. Though major reforms are tough, I think we can see definitive actions on expenditure management, especially on the fuel pricing front which will reduce the subsidy burden, coming up in the next few months.
In the short term, there can be some impact on corporates borrowing abroad and capital inflows due to the action,” Ms Rao said.
SMC Global Securities strategist and research head Jagannadham Thunuguntla said the S&P move would have serious implications.”The 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,” he said.
India Forex Advisers founder & chief executive Abhishek Goenka also said the S&P action will raise the cost of borrowing from overseas for domestic corporates.
State Bank of India, ICICI Bank, HDFC, NTPC, SAIL, TCS, Infosys, Wipro and IIFCL are among the companies whose rating outlook has been slashed to negative from stable by S&P
New Delhi: Standard & Poor’s on Wednesday downgraded the rating outlook of as many as 21 entities spanning across top banks, software exporters and public sector undertakings following the agency’s revision of country’s sovereign outlook, reports PTI.
State Bank of India, ICICI Bank, HDFC, NTPC, SAIL, TCS, Infosys, Wipro and IIFCL are among the companies whose rating outlook has been slashed to negative from stable by S&P.
The global rating agency’s move reflects the “outlook on the sovereign credit rating on India”, which too has been lowered to negative, citing slow fiscal progress and deteriorating economic indicators.
S&P has also revised downwards the rating outlook of Export-Import Bank of India, Indian Railway Finance Corp, Power Finance Corp, NHPC, Axis Bank, Bank of India, IDBI Bank, Indian Overseas Bank, Indian Bank, Syndicate Bank, Union Bank of India and IDFC.
“We have equalised the ratings and outlooks on India EXIM, IIFCL, and IRFC with the sovereign rating and outlook.
This reflects the entities’ integral linkages with, and their critical roles to, the Government of India,” S&P said.
According to the agency, outlook rating of NTPC, NHPC and SAIL are highly influenced by the sovereign rating given the entities’ sensitivity to government intervention in the event of financial distress.
S&P has also affirmed the ‘BBB-’ long-term issuer credit ratings of all the 21 entities.
Regarding banks, the agency cautioned that their rating could also be lowered if similar steps are taken for sovereign rating.
Experts also said that S&P’s move would not significantly impact the cost of resource mobilisation of the Indian banks since they raise bulk of the money from the domestic sources.
Lowering the rating outlook of the top three software exporters—TCS, Infosys and Wipro—the agency said it “reflect our ‘BBB+’ transfer and convertibility (T&C) assessment of India.
“We could lower the ratings on these companies if we revise downward our T&C assessment. We could lower our T&C assessment if we downgrade sovereign credit rating”.
S&P has also warned of downgrading India’s rating in two years if there is no improvement in the fiscal situation and the political climate continues to worsen.
“The rating outlook of the government-owned institutions cannot be higher than the sovereign rating. So accordingly, our rating outlook has been revised,” IIFCL chairman and managing director SK Goel said.
IIFCL gets funding from multilateral institutions. So, rating revision has no impact on the company, he said.
“We believe there is a low likelihood of a rating downgrade actually occurring as we expect the economy to see some cyclical rebound in the near term, the debt-to-GDP ratio is likely to remain stable, and the fiscal deficit should not worsen substantially,” Nomura said in a report
New Delhi: Financial services provider Nomura on Wednesday said there is a low probability of sovereign rating downgrade of India as economic activity is expected to show some rebound shortly, reports PTI.
“We believe there is a low likelihood of a rating downgrade actually occurring as we expect the economy to see some cyclical rebound in the near term, the debt-to-GDP ratio is likely to remain stable, and the fiscal deficit should not worsen substantially,” Nomura said in a report.
The only risk to this view is forex reserves declining materially, it said.
Earlier in the day, S&P revised the outlook on India’s sovereign credit rating to negative from stable, while reaffirming its BBB- rating.
The rating agency cited slowing investment and economic growth, and the widening current account deficit as the main reasons.
S&P expects the government to face headwinds in implementing policy measures to improve its fiscal and macroeconomic parameters in the near future, given the unfavourable political environment.
It assigned a one-in-three chance to an actual downgrade within the next 24 months.
A downgrade is possible if growth prospects or the political climate worsens, the external position deteriorates, or if fiscal reforms slow, it said.