Standard & Poor’s said on Monday that India could become the first of the so-called BRIC economies to lose its investment-grade status, sending the rupee and stocks lower, less than two months after cutting its rating outlook for the country.
“Slowing GDP growth and political roadblocks to economic policymaking are just some of the factors pushing up the risk that India could lose its investment-grade rating,” the ratings agency said in a statement issued Monday on a report dated June 8.
India’s sovereign rating is BBB-, the lowest investment grade rating, and in April S&P lowered its outlook on the rating for Asia’s third-largest economy to negative from stable.
S&P said the new report gave further detail as to why India’s investment-grade rating could be at risk.
Indian stocks cut gains after the S&P statement, while the rupee skidded to INR55.55 to the dollar from INR55.45 earlier after the S&P statement. The benchmark 10-year bond yield showed a more muted reaction, trading down 1 basis point at 8.34 per cent from its previous close.
“While INR and bonds moved on this S&P headline, it may not have been warranted. While the report is new, the content in itself is probably not,” said Kumar Rachapudi, fixed income strategist at Barclays Capital in Singapore.
“The discussion in this report has largely been covered in their previous report when S&P revised outlook in April.”
The two analysts who wrote the report could not immediately be reached for comment.
India recently posted March quarter GDP growth of 5.3 per cent, its weakest in nine years and far below expectations.
“Failure to advance with more liberalisation might reduce India’s long-term growth potential and thus hurt its sovereign rating,” the report said.
The so-called BRIC economies consist of Brazil, Russia, India and China.
India has the lowest rating from S&P of all the BRIC countries, and is the only one with a negative outlook from the rating agency, it said in the report.