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Neelam Naik made post

Why did Moody Investor Services recently downgrade India rating and what does that really man for Indian companies?

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Priyanka N answered.
9 months ago

Let me clarify that Moody did not downgrade the India ratings. That is still static at Baa2. What Moody’s has done is to downgrade the outlook for Indian economy from stable to negative. Rating agency, Moody’s, actually downgraded the outlook for the Indian economy from stable to negative. You need to understand the background. It needs to be recollected that back in 2017, Moody’s was the only global rating agency to upgrade India’s rating. At that time, S&P and Fitch had refused to upgrade the ratings due to concerns over the fiscal deficit and the overall debt levels. Now, the agency has maintained the ratings at Baa2 but has downgraded the outlook to negative. That must be interpreted as a warning signal on the assumptions that led to the upgrade of ratings in 2017.

Why do I call this a warning and not a downgrade? Let us look at it more analytically. Moody’s has raised genuine concerns on the macroeconomic front. For example, the weak rural demand and the stress on auto numbers is a reality. It is also true that consumption has taken a hit due to the combination of economic uncertainty and tightness in the credit markets. All these are already proven by statistics supporting them. But the downgrade should be seen in the light of the fact that Moody’s was the only agency to upgrade India ratings in 2017. At that point of time, the upgrade was based on certain assumptions that the demand scenario would pick up in the next 2 years. In the last two years, the overall GDP growth has also fallen to as low as 5% and now the likes of Nomura have downsized the full year growth to 4.9%. In that light, the assumptions of Moody’s have come under question. That is how you should look at this downgrade. This outlook downgrade should be seen more as a warning to the government to put the growth house in order and give a boost to the flailing fortunes of the Indian economy.