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.