Forex Marketz Daily Forex News – Fully Markets Update
Standard and Poor’s has made revision to its outlook on India’s BBB- sovereign credit rating. It was revised from negative to stable on Friday. This means we could have a ratings upgrade in the pipeline. Or does it?
There was an improvement with India’s external position and we are seeing positive growth prospects emerging. This means, the country is no longer on the cusp of a junk rating. The S&P was the last of the credit agencies with a negative outlook on India as Moody’s remained stable and Fitch upgraded their rating to stable back in 2013.
A lot more needs to happen before we get a ratings upgrade.
We need clarity of fiscal consolidation and the government’s efforts on the reform agenda. We also need a sustainable economic growth and recovery. We also need to see inflation come under control. We could see this, ratings upgrade come by the end of 2015 if not in 2016. However, we could see an increase sooner if the Indian gross domestic (GDP) shows a real per capita growth of five to 5.5 percent annually. We would also need to see inflation metrics improve as well external trade data improve. This would accompany an upward revision in its debt rating.
Should reforms stall, the S&P could slash the credit rating to junk. We would also need to see a stall out in economic growth as well as increasing fiscal to debt ratios. This means India is on the cusp of greatness or junk.
There has been signs of improvement in India’s economy. We saw their economy growing at 5.7 percent, annually, in June. This is its fastest growth pace in over 36 months, but whether or not this develops into something steady, is not certain yet. We are expecting the new prime minister, Narendra Modi, and his stable government to launch a series of measures to strengthen the country’s macroeconomic base and put Asia’s third largest economy back on a sustainable growth trajectory.
The Standard and Poor’s is not likely to raise India’s credit rating anytime soon. What we are hearing from the S&P is nothing new. There sentiment continues to reflect what investors are seeing in the strong performance by the Indian stock markets. We have seen India’s Nifty rally nearly 38 percent over the last year as a turnaround in imbalances in the economy has fueled the push higher. The clear victory of Modi’s Bharatiya Janata Party (BJP) also added fuel to the fire as stocks soared. However, we need to see significant reforms and growth before any ratings upgrade.
