S&P revises India outlook to negative

Ratings agency Standard & Poor's on Wednesday cut India's outlook to negative from stable, citing slow progress on its fiscal situation, as well as deteriorating economic indicators.

There is a one in three chance of a downgrade to India's credit rating if external conditions continue to deteriorate, the ratings agency said in a statement.

S&P has threatened to downgrade India's rating in next 2 years if fiscal situation does not improve.

The ratings agency said the investment and economic growth slowed while the current account deficit widended. It sees FY13 growth at 5.3%. S&P said government faces "unfavourable political environment" and that rating could stabilise if steps are taken to fiscal deficit.

 

Indian bond yields rose, while the rupee and stocks fell after ratings agency cut its outlook on the country.

India's 10-year bond yield rose 4 basis points to 8.63%, while the rupee fell to 52.64 against the dollar from 52.48 before the action.

Suresh Kumar Ramanathan, regional rates and foreign exchange strategist, CIMB Investment Bank, Kuala Lumpur, said: "With the outlook negative, this is likely to put a strain on the currency and is on track to meet our Q2 target of 54.00 (to the dollar). The OIS curve is tighter as rates inch higher particularly in the front end. This is made worse as liquidity is tight, with repo borrowings rising to Rs 1.18 lakh crore above the comfort zone of RBI."