S&P cuts India’s credit rating outlook

by Manshu on April 26, 2012

in Economy

S&P released a statement today which said that it has revised the outlook on India’s long term rating to negative from stable. They haven’t actually changed the credit rating of the country; just said that there is a one in three chance that the rating might be downgraded in the next 2 years in the current situation doesn’t change.

The current rating is the lowest possible investment grade rating which is BBB- and a downgrade would mean that India’s bonds will come under the “junk” category per their rating.

In the past year or so there has been a lot of talk about ratings with respect to Europe and Greece, and the key thing to remember is that India is significantly different from those countries in the sense that India has not borrowed from private lenders in the international market while those countries have. So, while it was quite common to hear about a Greek debt default, you are not likely to hear about an Indian debt default.

The issues that S&P talks about in their statement that led to the negative outlook are all familiar and should come as no surprise to anyone. In fact, the biggest surprise for me was the fact that the FM said something to the effect that the situation is difficult but there is no need to panic. I was amazed that he acknowledged it because I expected the government to say that S&P is ignoring all the good news or something else to that effect which placed the blame on S&P instead of the government.

To me this was just another reminder that things are going downhill and if they continue at this rate the risk of the economy faltering and growth stalling are very real. I touched upon this a few days ago when I said that the biggest risk to India’s long term growth is the political climate and this S&P’s statement simply reminded me of that and what my investments would look like if that scenario were to materialize.

That was a scary thought but then I was comforted to think that tea would probably be the national drink by that time, and that ought to make up for whatever losses I have in the stock market.

{ 8 comments… read them below or add one }

harinee April 26, 2012 at 10:20 am

Didnt get the Tea part?

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Manshu April 26, 2012 at 5:07 pm

Oh just a little frustration that the Planning Commission head declared that tea will be the national drink by next year. I mean it’s nothing really, and all these things have to go side by side with other more important things like FDI policy etc. but in India it seems the only things that get done are things that do nothing to improve the life of people. Declare something a national drink, stop a movie from playing during the day, rename a city, and what not.

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santonu April 26, 2012 at 9:01 pm

I donot think that such rating has any weihtage .
It is very ironical that protagonist of that particular flim got the best actress national ward conferred to her by the same govt which banned airing of the flim.

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Manshu April 28, 2012 at 7:47 pm

You mean S&P’s rating has no wight? Why not?

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harinee April 27, 2012 at 9:05 am

Hi
As a South Indian Coffee lover I strongly oppose Tea as national drink :). Anyway I am in a way happy S&P gave a wakeup call to the govt.They cant at least blame a Saffron hand or Anna Hazare behind S&P.
RBI allow cannot fight inflation and lagging IIP. We need to see some bold action from the govt on all issues else they need to move out.

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Manshu April 27, 2012 at 5:33 pm

LOL!!! I wonder if they thought of that! Blaming S&Ps action on Saffron hand, Anna or foreign hand πŸ™‚

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vikrant April 26, 2012 at 6:34 pm

The last paragraph was awesome :))

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Manshu April 28, 2012 at 7:50 pm

Thanks Vikrant πŸ™‚

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