What happens if rating agencies downgrade India?

Subscribe to GoodReturns
For Quick Alerts
ALLOW NOTIFICATIONS  
For Daily Alerts
    What happens if rating agencies downgrade India?
    S&P on Friday threatened to downgrade India's sovereign rating to ‘junk' status if the government failed to keep the momentum going on reforms and containment of the twin deficits. Earlier, Fitch had also maintained a cautious outlook on India. Also read Role of Credit Rating Agencies. How do they rate countries?
     

    What happens if S&P, Moody's or Fitch downgrade India?

    S&P has accorded India with a ‘BBB-' with a ‘negative' outlook. A downgrade below this means that India's sovereign rating would go down to junk status. In simple terms, the rating agencies if they downgrade India to junk status are telling investors that there is an element of risk if you invest in Indian companies and in India.

    What would happen then is that since there is an element of risk, investors investing in India would start charging higher interest rates for taking a risk. This also means that borrowing costs for Indian companies would be higher.

    Not only that, certain foreign investors are mandated not to invest in countries with a junk rating status. This could mean that there could be withdrawal of money by foreign institutional investor or various other foreign entities.

    This will most likely have an effect on the currency markets and the rupee could drop. Not to mention the fact that the stock market could come crashing down with a rapid erosion in shareholder wealth. All the above outcomes are just hypothetical, unless there is a downgrade.

    What is S&P saying?

    On Friday S&P warned of a down grade. ""We may lower the rating if we conclude that slower government reforms than we currently expect would not lead economic growth to recover to levels experienced earlier this decade...India's long-term growth prospects, underpinned by its favourable demographic profile and its high foreign exchange reserves, support the ratings. The country's large fiscal deficits and debt, as well as its lower middle-income economy, constrain the ratings," it said.

    GoodReturns.in

    Read more about: fitch sp
    Company Search
    Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'

    Find IFSC

    We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Goodreturns sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Goodreturns website. However, you can change your cookie settings at any time. Learn more