Thursday, June 21, 2012

Credit Rating Agency Fitch downgraded India’s Credit Outlook Rating

International credit rating agency Fitch revised the credit outlook of India to negative on 18 June 2012. The agency cited rampant corruption and stalled reform existing in the country as the reason behind the move to downgrade the country's credit rating. The rating agency, however, maintained the India's sovereign rating at 'BBB-'.
Fitch also downgraded the credit outlook of seven PSUs namely NTPC, SAIL, IOC, PFC, GAIL, REC and NHPC. The agency downgraded the credit outlook after considering a broad range of factors, such as, macro economic policy, economy, public finances. Negative credit rating means that over the next 12-24 months there is a possibility that India's rating could be downgraded.
The agency in its report opined that with the fragile state of economy and a large subsidy bill India is likely to miss its fiscal deficit target of 5.1 percent for 2012-13. It predicted India’s fiscal deficit to be 5.6-5.9 percent of GDP. The agency also lowered the GDP growth projection of India for fiscal year 2012-13 from 7.5 percent to 6.5 per cent.
The Union Finance Ministry, however, rejected the agency’s rating and pointed out that foreign institutional investors (FII) have reposed their faith in the Indian economy and have already invested a net 12.3 billion dollar in the first five months of the calendar year 2012 compared to 8.3 billion dollar in the full calendar year of 2011.
Another credit rating agency Standard & Poor's had also revised the India’s credit outlook to negative in April 2012. S&P’s in its most recent report on India’s credit outlook released on 12 June 2012 had warned that given its sluggish growth rate and stalled economic policy reforms,  India could be the first among the BRIC grouping nations to lose investment-grade rating.

What the sovereign rating 'BBB-' means:
BBB- is the last rating in the ratings which falls under investment grade. If India gets its credit outlook downgraded further, then it will be rated at BB+. The BB+ rating considered highest speculative grade by market participants. It is also the first rating at the junk level.

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