As expected the front page of all the financial news papers covers the story of S&P negative on India . I was just trying to figure out the implications of S&P outlook downgrade to India, The agency retained the rating at BBB-, but said it was changing its outlook from stable to negative. let’s try to figure out the impact :-
- Well the rating is BBB- S&P just gone to pessimist and revised its outlook for India country rating negative.
- BBB- is the last rung in the ratings grade of S&P ,downgrade from here meaning India will be having speculative grade rating.
- Well the implications of the downgrade if that happens will affect Debt & equity. Indian Companies will be borrowing at a higher rate in the global markets.
- If the downgrade happens many of the FII will not be able to invest as the country rating may not fall in the investment grade.
- Rupee might come under pressure.But it opened stronger today and was up 11paise in the early trade.
I would not like to criticise any one but there are serious concerns that I would like to address in this post. It’s ok that S&P credit rating 4 India Inc. is negative, but what is the credibility rating of S&P? When The Republic of Ireland, original home of the busted economy, has a higher S&P rating than India.Greece defaulted and they where not declared as junk. To my surprise I got a sms text from one of my friend and it was quoted that even the S&P agrees that money from India goes to Italy. India Rating : BBB- … Italy Rating : A+.
The Rating Agency is getting nuttier day by day? There is no reason whatsoever for Stand and Poor to revise its outlook on India as of now.Except for some concern about the growth rate deceleration in the fiscal year just ended there’s no immediate problem that should send any warning signal to the investors as such. A seven percent growth in these times when the European countries are actually undergoing a recession is a down to earth good performance. Concerns about China’s falling growth rate should cause more worry to the investors.where Moody’s confirms China Aa3 rating, outlook positive today. The fiscal deficit estimates are only slightly higher. And as regards economic reforms why at all a rating agency should bother itself with that? A sovereign nation should have its own say! No body can impose conditions on us! Of course India needs to do better, but S&P’s rating must not be taken at face value. After their recent disasters, conservatism is in.
Ratings agencies like S&P, Moody’s, Fitch, are a matter of convenience, so people who don’t want to think for themselves can feel good about making decisions for which they have spent no intellectual capital of their own. Unfortunately, our financial system has adopted these agencies’ “ratings” into the rules of the system, thereby giving the agencies unwarranted influence over investment outcomes. It might be said that S&P, Fitch, & Moody’s combined are more powerful than any government.One has to remember that all of these wonderful ratings agencies thought the economies of the planet were in good shape until the 2007-2008 debacle.Hindsight is always 20/20.