S&P has revised the outlook in view of slowing economic growth and the widening of the current account deficit and fiscal deficit.
The agency has said that there is a one in three possibility of downgrade if the external position gets worse. It has also said that the rating may stabilise if steps are taken to cut fiscal deficit.
The markets which were trading steady saw a sharp reaction following the negative outlook with the Sensex dropping by almost 180 points at 12.10 pm. The rupee which had gained ground to almost 52.48, lost 13 paise immediately from this level to trade at 52.61.
The rating agency says that GDP for 2012-2013 is likely to be 5.3%. The negative India outlook comes against the backdrop of rising worries on the fiscal and current account deficit, high interest rates and a weak investment climate.