NEWS – S&P Upgrades India Outlook to ‘Positive’ After a Decade

HIGHLIGHTS

Upgrade Details:

• Outlook raised to ‘Positive’ from ‘Stable’.
• Long-term sovereign rating reaffirmed at ‘BBB-’.

Key Reasons for Upgrade

• Economic Growth:
  • Robust economic expansion in India, the world’s fastest growing major economy.
  • Sound economic fundamentals expected to sustain growth over the next 2-3 years.
  • Annual growth projection close to 7% over the next three years.
• Policy and Reforms:
  • Continuation of economic reforms and fiscal policies expected regardless of election outcomes.
  • Improvements in infrastructure and connectivity to bolster long-term growth.
  • Better quality of government spending, particularly on infrastructure.

Fiscal and Monetary Policies

• Fiscal Policies:
  • Path to fiscal consolidation becoming more concrete.
  • Improvements in fiscal performance expected.
• Monetary Policies:
  • Cautious fiscal and monetary policies reducing government debt and interest burden.
  • Economic resilience bolstered by these policies.

Strengths and Weaknesses

• Strengths:
  • Dynamic, fast-growing economy.
  • Strong external balance sheet.
  • Democratic institutions supporting policy predictability.
• Weaknesses:
  • Weak fiscal performance and high debt stock.
  • Low GDP per capita.

Historical Context

• First outlook improvement on India by S&P in nearly 10 years.
• Economic recovery from the Covid-19 pandemic described as ‘remarkable’.

Implications for Investors

• Ratings by S&P, Moody’s, and Fitch serve as indicators of a country’s creditworthiness.
• These ratings influence borrowing costs and investor sentiments.

STANDARD & POOR’S (S&P)

• Formed by merger of Poor’s Publishing and Standard Statistics Bureau in 1941
• Acquired by The McGraw-Hill Companies in 1966.
• Combined index operations with Dow Jones Indices in 2012.
• Rebranded as S&P Global in 2016, comprising various divisions.
• Poor’s Publishing: Founded in 1868, initially focused on railroad industry guidebooks.
• Standard Statistics Bureau: Established in 1906, published financial data on companies.
• First stock market indicator released in 1923, covering 233 companies.
• Poor’s Publishing issued its first rating in 1916.

Credit Rating System

• Ratings range from AAA to D for debt and governments.
• Includes ratings for short-term debt and outlook ratings from six months to two years.
• Grades from A to D, with plus/minus signs or numbers for granularity.
• “Investment grade” starts from BBB and above.
• Below BBB is “speculative” with higher risk.

BBB Rating

• BBB is the lowest investment grade rating.
• Indicates adequate protection parameters but sensitive to economic conditions.