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S&P ups India outlook to stable from negative PDF Print
Written by India Treasury team   
Friday, 19 March 2010 10:08
It was something that everyone was expecting. It is good that they have done it now
 
 
Standard & Poor's said on Thursday it had affirmed its ratings on India and revised its outlook to stable from negative.

S&P said the outlook upgrade reflects its view that India's fiscal position could begin to recover and the economy would remain on a strong growth path.

The benchmark Sensex share index was up 0.32 percent in late trade.

Following are comments from analysts:

KEY POINTS:

- S&P expects India's fiscal position to improve over the next few years and its economy to maintain strong growth momentum.

- Affirms the 'BBB-' long-term and 'A-3' short-term sovereign credit ratings on India.

- Says the ratings continue to be constrained by the high government debt burden and deficit, and India's weak fiscal profile.

- The consolidated debt of India's central and state (general) governments is estimated at 80 percent of GDP (by our definition) in the current fiscal year, while interest payments are likely to consume about 27 percent of general government revenue.

- "In our opinion, the recent high inflation rate could also derail the stable macroeconomic and interest rate environments," S&P credit analyst Takahira Ogawa said.

- The wholesale price index (WPI), India's most widely used inflation index, increased by 10 percent in February, mainly because of the rise in food prices.

COMMENTARY:

SANJAY MATHUR, ASIA ECONOMIST, ROYAL BANK OF SCOTLAND, SINGAPORE:

"I think what this signals is the ratings agencies' greater comfort with the fiscal situation. For the first time we saw two defining features in the budget.

"An actual cutting of the subsidy bill in rupee terms and not as a percentage of GDP and creation of a national investment fund from the disinvestment proceeds which will go towards socially acceptable programs.

"I think the rating agencies will upgrade India in the next fiscal year with the introduction of the GST and as the overall fiscal deficit to GDP ratio falls below 5 percent."

SUMITA KALE, ECONOMIST, INDICUS ANALYTICS, PUNE:

"It was something that everyone was expecting. It is good that they have done it now.

"It doesn't mean that the risks have gone away. It means that our debt management is under control. It reaffirms that we are on the right path and are recovering faster than many other countries."

SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI: "It augurs well with the risk of a downgrade having been removed. Going forward, further fiscal consolidation will enhance investor confidence."

SANDIP SABHARWAL, CHIEF EXECUTIVE OF PORTFOLIO MANAGEMENT SERVICES AT PRABHUDAS LILLADHER IN MUMBAI

"It is a matter of time that India's rating gets upgraded further."

VIVEK KUMAR, ECONOMIST, ICICI BANK, MUMBAI:

"This was waiting to happen. The positive outlook on domestic growth along with the government's intent to bring down deficit and debt levels should be supportive for sovereign outlook."

AMBAREESH BALIGA, VICE-PRESIDENT, KARVY STOCK BROKING, MUMBAI:

"That is helping the stocks. The stocks have risen in a knee-jerk reaction.

MARKET REACTION:

India's 10-year bond yield fell 4 basis points after S&P raised India rating outlook, while the 5-year swap rate shed 3 basis points.

The 30-share BSE index ended up 0.2 percent.

(Reporting by India Treasury team and Saikat Chatterjee in Hong Kong; Editing by Ranjit Gangadharan)