The world’s largest rating agency, Standard and Poor (S&P), reaffirmed on Thursday the India recovery story as it revised its outlook on the world’s second-fastest growing economy to ‘stable’ from ‘negative’, though the rating remained ‘BBB minus’.
Economists and market experts were not surprised but felt it will impact corporate borrowing rates and lead to a strengthening of fund flows.
“Given the credible steps taken towards fiscal consolidation, this rating upgrade was due,” said Abheek Barua, chief economist, HDFC Bank. “I think borrowing cost for Indian companies should come down as there would be some re-pricing of the external commercial borrowing rates.”
Consumers, however, will be affected only indirectly.
They will be hit if the cost of funds for banks goes down, so will interest rates on home or auto loans.
A stable outlook by the S&P comes as positive news for the markets even though experts feel that much of the reasons are already factored in.
“This is a reaffirmation of India’s economic growth and will remove any apprehension in the minds of global investors,” said Sanjay Sinha, CEO, L&T Mutual Fund. “The market has already taken Budget 2010 announcements into account and fund flows have been strong since then,” said the head of another mutual fund. “This upgradation has come with a lag.”
S&P expects the India growth story to continue, but prices remain an area of concern. “We expect India’s GDP growth to be 8 per cent in fiscal year ending March 31, 2011, which is higher than many other countries; and exceeds our previous expectation,” said Takahira Ogawa, credit analyst, S&P. The agency also revised its outlook on 12 Indian banks — including State Bank of India, HDFC Bank, ICICI Bank, Bank of Baroda and Canara Bank — to ‘stable’ from ‘negative’.