The world’s largest rating agency Standard and Poor (S&P) on Thursday reaffirmed the India recovery story, revising its outlook on the world’s second-fastest growing economy to ‘stable’ from ‘negative’. The rating though remained ‘BBB minus’.
Economists and market experts are not surprised but felt that it will have a positive impact on 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 that borrowing cost for Indian companies should come down as there will be some re-pricing of the external commercial borrowing rates.”
Consumers, however, will be affected only indirectly — 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 the Budget 2010 announcements into account and fund flows have been strong since then,” said the head of another mutual fund, on condition of anonymity. “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 the 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’.