India could be on the verge of a sovereign rating downgrade
In a report on Wednesday, Nomura warned about the risk of a ratings downgrade by Moody’s Investors Service and a negative outlook by Fitch Ratings.Updated: Apr 30, 2020 05:59 IST
India is vulnerable to a sovereign rating downgrade because of its worsening debt dynamics and poor fiscal track record, Japanese securities firm Nomura cautioned, even as a nationwide lockdown to check covid-19 chokes its businesses and the economy.
In a report on Wednesday, Nomura warned about the risk of a ratings downgrade by Moody’s Investors Service and a negative outlook by Fitch Ratings.
“India’s Achilles heel on ratings is its parlous state of fiscal affairs and the risk of a sharp deterioration of general government debt from 70% of gross domestic product (GDP) to potentially 75-80% of GDP. A further risk is the deterioration in economic growth, partly intertwined with financial sector concerns,” Nomura said.
Currently, India has a sovereign rating of BBB- with a ‘stable’ outlook from S&P Global Ratings and Fitch—a grade above junk category—while Moody’s rates it at the equivalent of one notch above, at Baa2, though it changed India’s outlook to ‘negative’ last November.
Nomura’s views follow Fitch Ratings warning on Tuesday that the deterioration in India’s fiscal outlook as a result of slower growth could put pressure on its sovereign rating. Last week, Fitch revised its forecast for India’s GDP in FY21 to 0.8%.
Given Fitch’s assessment of debt sustainability and India’s poor fiscal track record, Nomura said the likelihood of an outlook change to “negative” is elevated.
It also said Moody’s is likely to downgrade India’s rating from Baa2 ‘negative’ to Baa3 ‘stable’ but may wait to get a better handle on government’s fiscal plans to make a complete assessment of the growth and fiscal impact.