Sat, Nov 09, 2019 - Page 10 News List

Moody’s cuts India’s rating outlook

‘NEGATIVE’:The Ministry of Finance said that India is still among the fastest-growing major economies in the world, and that its relative standing remained unaffected

Bloomberg

Moody’s Investors Service cut India’s credit rating outlook to “negative,” citing a litany of problems from a worsening shadow-banking crunch and a prolonged slowdown in the economy to rising public debt.

The sharp slowdown in growth and a surprise corporate tax is expected to put the Indian government’s finances under pressure this year.

Moody’s is projecting a budget deficit of 3.7 percent of GDP in the year through March next year, a breach of the government’s 3.3 percent target.

Moody’s retained India’s foreign currency rating at “Baa2,” the second-lowest investment grade score, but said it could downgrade the nation if fiscal metrics deteriorated materially.

India’s growth outlook has weakened sharply this year, with a crunch that started out in the shadow-banking industry spreading to retail businesses, automakers, home sales and heavy industries.

Growth has come down to a six-year low of 5 percent, with Moody’s saying that there is a low chance of sustained growth at or above 8 percent.

The slowdown “has been deeper and longer than anticipated,” Moody’s Sovereign Risk Group vice president William Foster said in an interview with Bloomberg TV. “What we need to see for it to stabilize is really growth ticking back up on a more sustainable basis at higher levels, and that feeding into the government’s ability to raise taxes and bring down fiscal deficit.”

The government yesterday said that it took note of the Moody’s revision.

While it is flagging, India continues to be among the fastest-growing major economies in the world, it said.

“India’s relative standing remains unaffected,” the Indian Ministry of Finance said in a statement.

Steps taken by the government to strengthen the economy “would attract capital flows and stimulate investments,” it said.

The Reserve Bank of India has already cut interest rates five times this year, although lenders are not passing that easing on to customers.

Moody’s said it does not expect the credit crunch among non-bank financial institutions, which were the main source of consumer loans in recent years, to be resolved quickly.

Investors would closely watch the nation’s GDP data for signs of further, long-lasting weakness, which could result in another negative shift, Moody’s said.

Stabilization in the non-bank financial sector would be credit positive and could indicate less risk of negative spillover into banks, Moody’s added.

“There have been some concerns about fiscal slippage,” said Shamaila Khan, director of emerging-market debt at AllianceBernstein in New York. “If the government is able to maintain discipline and mitigate spending by doing more privatizations that could help allay these concerns.”

“There’s a reasonable probability that that could happen and this is a negative outlook, so it gives them some time to play this out,” Khan said.

Moody’s rates India one level higher than Fitch Ratings and S&P Global Ratings, with the two latter companies still holding India’s outlook at “stable.”

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