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.
Noting that proposed indirect transfer rules cause particular confusion for international portfolio investors, ASIFMA’s letter to the FM said a straightforward reading of the “draft legislation leads us to believe that double or even triple taxation of the same profits is very possible”
New Delhi: Foreign brokerages have asked the government to exempt overseas investments in the Indian stock market from the proposed general anti-avoidance and indirect transfer rules or risk disorderly unwinding of FII (foreign institutional investor) holdings, reports PTI.
“Exemption of cross-border portfolio investments would permit FIIs to continue to play their supportive role in the Indian economy uninterrupted, while also continuing to pay taxes in line with internationally accepted practice,” industry group Asia Securities Industry & Financial Markets Association (ASIFMA) said in a letter to finance minister Pranab Mukherjee on Tuesday.
ASIFMA is a grouping of over 40 entities that are involved in Asian capital markets.
The proposals of the General Anti Avoidance Rule (GAAR) and indirect transfer norms in the Finance Bill 2012 has raised concerns among FIIs.
According to the letter, there is a risk of a disorderly unwinding of significant FII holdings in the Indian capital markets if the issues are not resolved.
Noting that proposed indirect transfer rules cause particular confusion for international portfolio investors, the letter said a straightforward reading of the “draft legislation leads us to believe that double or even triple taxation of the same profits is very possible”.
The latest letter is a follow-up to the one written by the body on 28th March.
ASIFMA pointed out that since the Budget on 16th March, net FII inflows have slowed down.
“FII net inflows from the start of 2012 till 16th March were Rs43,700 crore, while between 17th March and 16th April, they stood at a mere Rs800 crore, an effective daily average drop of 95%,” it noted.
As on 16th March, FIIs had assets under custody of more than Rs10 lakh crore or 17% of the capitalisation of India’s equity markets.
The industry body stressed that no major economy in the world has chosen to collect taxes from cross-border portfolio investments in the listed securities markets.
“The cross-border portfolio investments that will be caught up under India’s proposed legislation are typically subject to tax in the home jurisdiction of the investors in accordance with international standards.
“This is the same rule that applies to Indian investors involved in capital markets abroad,” ASIFMA CEO Nicholas de Boursac said in a statement.
ASIFMA said it welcomes recent government assurances that adverse consequences would be avoided. “Such verbal assurances are insufficient, however, in the face of warnings from leading Indian legal and tax advisors on the negative consequences of the proposed legislation,” it added.