S&P cuts India's rating to Negative

sob

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S&P cuts India outlook to negative; markets hit | Reuters

Ratings agency Standard & Poor's on Wednesday cut India's outlook to negative from stable, citing its large fiscal deficit and expectations of only modest progress on reforms given political constraints, battering stocks, bonds and the rupee.

The lowered outlook jeopardises India's long-term rating of BBB-, which is the lowest investment grade rating.

"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," S&P credit analyst Takahira Ogawa said in a note.

India's 10-year bond yield rose 4 basis points to 8.63 percent, while the rupee weakened to 52.64 against the dollar from 52.48 before the action.

Stocks were also hit, with the main BSE index down 0.9 percent.

India's fiscal deficit swelled to an expected 5.9 percent of GDP in the fiscal year that ended in March, far above the government's 4.6 percent target.

Many economists believe New Delhi will have a tough time hitting its target of cutting the deficit in the current fiscal year to 5.1 percent of GDP, given a hefty subsidy burden and a weakened government that has failed to push through significant reforms.

The general elections looming in 2014 are expected to limit the prospects for significant reforms that would improve the investment climate and India's fiscal position.

"The writing was on the wall given the country's weakening debt profile and sluggish investment climate," said Radhika Rao, economist at Forecast Pte in Singapore.

"With the coveted investment grade now at risk, one can only hope this acts as a wake-up call for the government," she said.

Moody's has a Baa3 rating on India, while Fitch rates India BBB-. Both are also the minimum investment grade ratings. Moody's in December issued a stable outlook for India.
 

sob

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Unfortunately for people who keep track of these things were waiting for this downgrade, after a very disappointing budget and the confused signals given by the Govt.

Also IMO the large scale fudging of figures in the Union Budget also has given a very negative image.
 

asianobserve

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The people at these American ratings agencies really have no shame. I wonder how they can sleep at night knowing that their billions of revenues are a product of bogus mathematics... they should have prevented the 2008 US financial meltdown in the first place.
 

sob

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Some of the reactions to this rating

A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI
it complicates the external balance picture as lot of investors will be constrained to invest if India falls below investment grade and there will be limited room on policy action if the rupee weakens further."

ARUN SINGH, SENIOR ECONOMIST, DUN & BRADSTREET, MUMBAI
we will see markets, including the currency, remaining under pressure. "Key step here is to see how the foreign institutional investors take this action given the already present worries on economic and political factors. Risk premium for corporates borrowing abroad will have to rise as well."

DARIUSZ KOWALCZYK, ECONOMIST, CREDIT AGRICOLE CIB, HONG KONG
I expect regulatory measures soon and they could provide temporary respite to INR. Rupee is vulnerable due to high twin deficits (fiscal and current account) and inadequate policy response and should fall further in the short term."


SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI
"It has had a quick sentiment impact. It may have a bit of adverse impact on capital inflows. And borrowing costs of corporates may get affected because of outlook downgrade, but difficult to say how much. We are not really looking at a downgrade possibility right away.
Link to the article: S&P cuts India's outlook to negative; analysts' views - The Economic Times
 

Daredevil

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The credit-ratings are the biggest scam responsible for 2008 financial meltdown and subprime crisis..
 

sob

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The people at these American ratings agencies really have no shame. I wonder how they can sleep at night knowing that their billions of revenues are a product of bogus mathematics... they should have prevented the 2008 US financial meltdown in the first place.
But then this rating is followed by people all over the world and this will have an impact on India. There will be downward pressure on the Rupee.
 

sob

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DD, they may have goofed on the meltdown, but the reality is that these ratings count and do matter in the international markets. You have to see the reaction from the stock market.BSE is down almost 0.9% about 145 points down
 

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I agree that credit ratings are important but I don't like the double standards employed by these credit agencies when they give good credit ratings to countries on death bed (like UK) while giving bad credit ratings to countries that grow at a faster pace.
 

asianobserve

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But then this rating is followed by people all over the world and this will have an impact on India. There will be downward pressure on the Rupee.

These American ratings agencies are way out of their league. Don't believe everything they said.
 

asianobserve

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DD, they may have goofed on the meltdown, but the reality is that these ratings count and do matter in the international markets. You have to see the reaction from the stock market.BSE is down almost 0.9% about 145 points down

They matter to Wall Street types because the "opinions" (which is what they are actually) of this ratings agencies provides good excuse for market volatility, which is what funds, investment banks and speculators want. I suspect there maybe some connection between people in these ratings agencies and financiers/speculators...
 

Blackwater

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Does any Tom,Dick and Harry Credit rating Company matters??????
 

SLASH

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The path of reforms should be slow an steady. We do not need overnight billionaires. Growth should be inclusive to reduce income inequality. Though I must say this UPA term has been horrible as far economic reforms are concerned.
 

pankaj nema

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Good ; we will NOT see Wasteful schemes such as Right to free food and Right to Education

The govt has been throwing Good money in bad schemes

Fiscal deficit has finally caught up with this govt

Fiscal discipline has to be maintained
 

sob

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Bouncer from the FM

legislation would be passed in order to improve the fiscal deficit.
He is very clever with words. By association the whole blame is on the opposition and other parties and not on the mismanagement this Govt. has been doing for the last 8 years.
 

sob

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Rather Bold Headlines from Firstpost

S&P subtext: We don't believe you Mr FM; so what's next? | Firstpost

It's all stacking up against finance minister Pranab Mukherjee. Now, more than ever, the ball is firmly in the court of the man who has been known to be the Congress party's crisis manager.

Wednesday's move by global ratings major Standard & Poor's of lowering India's long-term sovereign ratings outlook from stable to negative only reinforces several of the pain points the economy has been witnessing over the past many months.

S&P's move, the rating major says, reflects its view of a 'one-in-three' likelihood of a downgrade going forward. The downgrade will be inevitable if the external position continues to deteriorate, growth prospects diminish and progress on fiscal reforms remains slow in 'a weakened political setting', the rating agency added.

The biggest problem Pranab Mukherjee faces is a crisis of credibility of his numbers and estimates.

The challenge before the finance minister, given the pile of negatives and the major credibility crisis of numbers, is to try and restore some semblance of order in a sputtering economy. The RBI, as has been argued earlier, has done more than its share this time by slashing rates despite not being entirely comfortable with the inflationary situation. The RBI has also made it clear that the chances of future rate cuts would be limited since there is a very limited upside given its estimate of a 7.3 percent GDP growth estimate for the year ended March 2013 and its own assumption of a 7.5 percent 'trend' non-inflationary growth rate.

The time for Mukherjee to prove his mettle as an ace crisis manager is now. And this time, the crisis is looming on his own doorstep.
 

sob

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The main crisis that Pranab Mukherjee faces today is the complete lack of confidence people are beginning to have in him and his Govt. The fudging of numbers in two consecutive Budgets has not helped his case either.

Glaring truth which sticks in the face from the above article
The biggest problem Pranab Mukherjee faces is a crisis of credibility of his numbers and estimates.
 

sob

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For the economists the question about the downgrade was not why but when it would happen. the obvious impact on the Rs. and it;s implications on our oil import bill is something which we cannot escape from.

‘S&P’s India downgrade not a surprise but a dampener’ | Firstpost

India's widening fiscal deficit is what economists have been debating for the last several months now. Add to that growing inflation, falling rupee, ballooning current account deficit, massive debt and no foreign investment. A downgrade from rating agency S&P was bound to happen.
The situation wasn't particularly surprising, but in terms of what we can expect for rates, we think that the outlook downgrade will dampen the interest in local currency debt, which has already weakened on other related uncertainties,"
 

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