S&P cuts India's outlook to negative, warns of downgrade

The lowering of the outlook by S&P from stable (BBB+) to negative (BBB-) is expected to make external commercial borrowings expensive for Indian Inc

New Delhi:  Global agency Standard and Poor’s (S&P) lowered India’s rating outlook to negative and warned of a downgrade in two years if there is no improvement in the fiscal situation and the political climate continues to worsen, reports PTI.

The lowering of outlook from stable (BBB+) to negative (BBB-) is expected to make external commercial borrowings (ECBs) 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 are dim, its external position deteriorates, its political climate worsens, or fiscal reforms slow,” it said.

The lowering of rating outlook comes despite the finance ministry pitching for an upgrade at the recent round of meetings between the officials and representatives of the S&P.

S&P said India’s real GDP (gross domestic product) per capita growth will likely remain moderately strong at 5.3% in 2012-13, compared with about 6% on average over the prior five years.

“India’s favourable demography and the increasing middle- class population will undergird its medium-term growth prospects, which in turn will support the sovereign ratings,” Mr Ogawa said.

India’s favourable long-term growth prospects and high level of foreign exchange reserves support the ratings, the agency said. On the other hand, India’s large fiscal deficits and debt, as well as its lower middle-income economy, constrain the ratings, it added.

“High fiscal deficits and a heavy debt burden remain the most significant constraints on the sovereign ratings on India. We expect only modest progress in fiscal and public sector reforms, given the political cycle—with the next elections to be held by May 2014—and the current political gridlock,” S&P said.

Such reforms include reducing fuel and fertiliser subsidies, introducing goods and services tax (GST), and easing of restrictions on foreign ownership of various sectors such as banking, insurance, and retail sectors, it said.

On the other hand, S&P said the ratings “could stabilise again if the government implements initiatives to reduce structural fiscal deficits and to improve its investment climate.”

Fiscal measures could include an increase in domestic prices and a more efficient use of fuel and fertiliser subsidies, or an early implementation of the GST.

Reacting to the rating action, a senior finance ministry official said India’s growth rate is intact and robust and it is not going to have any major impact on the country.

“We are not overtly concerned about revision. Other nations make India look good,” the official added.

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Union Bank, Corporation Bank cut lending rate

Union Bank of India has revised base rate or minimum lending rate by 15 basis points to 10.50% from 10.65%. The revised rates will be effective from 1st May

New Delhi: A day after country’s largest lender SBI trimmed its fixed deposit rates, two more lenders—Union Bank of India and Corporation Bank—slashed benchmark lending rate by 0.15%, making loans cheaper, reports PTI.

The bank has revised base rate or minimum lending rate by 15 basis points to 10.50% from 10.65%, Union Bank of India said in a filing on the BSE.

Base rate is the benchmark rate below which a bank cannot lend.

Another state-owned lender Corporation Bank has also reduced the base rate by similar percentage points to 10.50%.

The revised rates of both the banks will be effective from 1 May 2012.

Following the Reserve Bank of India’s (RBI) decision to cut key interest rate by 0.5% to 8% in its annual credit policy last week, several banks including ICICI Bank, IDBI Bank and Punjab National Bank have reduced both lending and deposit rates.

State Bank of India (SBI), along with five more banks, has already announced revision in their interest rates.

SBI trimmed interest rates on fixed deposits by up to 1% across various maturities. There was upward revision of 0.25% in case of fixed deposits of 180 days.

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IDBI Mutual Fund launches ‘India Top 100 Equity Fund’

The investment approach of the scheme would concentrate on a total of 100 stocks that are constituents of the S&P CNX Nifty Index (Nifty 50) and the CNX Nifty Junior

Mumbai: IDBI Mututal Fund announced the launch of its second fund in the equity segment named ‘IDBI India Top 100 Equity Fund’, which has opened for subscription on 25 April 2012, reports PTI.

Subscription for the new fund offer (NFO) will close on 9 May 2012 and will reopen for sale and repurchase from 22 May 2012 onwards, a top company official said.

“Our bouquet of investment options comprise of index-based equity funds as well as gold and debt products. We now bring a diversified, actively manage equity fund to present a long-term investment opportunity in the current equity market,” IDBI Asset Management managing director and chief executive officer Debasish Mallick told reporters.

He said the fund house is aiming to ramp up Rs100 crore from investors from this offer.

Referring to investment objective, Mr Mallick said investment approach of this scheme would concentrate on a total of 100 stocks that are constituents of the S&P CNX Nifty Index (Nifty 50) and the CNX Nifty Junior.

The company, which has an index fund in the equity segment, also said that it would look for launching more equity funds in the current financial year.

“We may launch new funds in the equity space in the current financial year,” Mr Mallick said.

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COMMENTS

wealthucreate

5 years ago

It would be really interesting to see how IDBI would perform as Fund House. I

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