Highlights of S&P Outlook India.

S&P raised the outlook for India’s “BBB-Minus” to “stable” from “negative”.

While talking briefly about India’s current scenario, I can just say that, for India it is a transition period.
There is a full-fledged majority of single party ruling over Indian Constituency.  Apart from that, PM Modi has swayed all over.
In this transition period, people are seeing the changes, till date most of the changes are positive. And here, the S&P outlook for India has improved the persona of governance under NaMo.

Here I have tried to find some of the reason of changes in the outlook for India’s rating by S&P.

·         India’s improved political setting offers a conducive environment for reforms which may boost growth prospects and improve fiscal management,

·         Country’s strong external profile, combined with its democratic institution and free press.

·         India’s little external debt

·         View that the new government has both the willingness and capacity to implement reforms necessary to restore some of India’s lost growth potential.

·         S&P may lower the rating if the government’s structural reform agenda stalls such that economic growth does not accelerate or fiscal and debt ratios fail to improve.

·         India’s well-entrenched democratic political system is another credit support.

While reviewing the rating by S&P, it is found that the conducive environment created by the governance had made this upgrade in the rating. India’s low wealth level, as measured by per capita GDP, is one of the main constraints on the upgraded rating.

Let us understand the constraints on which rating agencies award grades and what actually the Credit Rating is!!!!

Credit Ratings are opinions about Credit Risk, ability and willingness of the issuer (corporation or state or city or govt) to meet its financial obligations in full and on time.

Each Agencies applies its own methodology in measuring creditworthiness and uses a specific rating scale to publish rating opinions (we are not going to discuss those  methodologies here). Typically, ratings are expressed as letter grades that range, for example, from ‘AAA’ to ‘D’ to communicate the agency.

Investment Grade. AAA:-  Extremely strong capacity to meet financial         commitments. High Rating. AA  :-    Very strong capacity to meet financial commitments. A     :-   Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances. BBB  :- Adequate capacity to meet financial commitments, but more subject adverse economic conditions. BBB-  :- BBB minus opines considerable lowest investment grade by market participants.   Speculative Grade BB+ :- Considered highest speculative grade by market participants. BB :-  Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions. B   :-  More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments. CCC :- Currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments. CC  :- Highly vulnerable; default has not yet occurred, but is expected to be a virtual certainty. C     :-Currently highly vulnerable to non-payment, and ultimate recovery is expected to be lower than that of higher rated obligations. D       :-Payment default on a financial commitment or breach of a imputed promise; also used when a bankruptcy petitions has been filed or similar action taken.      Courtesy: SPRS Understanding Rating

 

When we talk about India’s current Rating, it has been upgraded From BBB Negative to stable (not positive). It means that the current scenario of Indian economy is at upward move. There are hopes of reforms in the economy. The stable outlook for the next 24 months reflects a view that the new government has both the willingness and capacity to implement reforms necessary to restore some of India's lost growth potential, consolidate its fiscal accounts, and permit the Reserve Bank of India to carry out effective monetary policy. S&P could raise the rating if the economy reverts to a real per capita GDP trend growth of 5.5% per year and fiscal, external, or inflation metrics improve. Conversely, S&P may lower the rating if the government's structural reform agenda stalls such that economic growth does not accelerate, or fiscal and debt ratios fail to improve.