Markets close lower on S&P rating warning

Stock markets and the rupee lost their early gains on Monday as the international rating agency Standard & Poor's (S&P) warned that India could be the first country to lose its investment grade among BRIC (Brazil, Russia, India and China) nations.

“Slowing GDP growth and political roadblocks to economic policy making could put India at risk of losing its investment grade rating,” Standard & Poor's said in a report, Will India be the first BRIC fallen angel?

Standard & Poor's Ratings Services revised its outlook on India's ‘BBB-' long-term sovereign credit rating, which is one notch above speculative grade, to negative from stable in April of this year because of lower GDP growth prospects and the risk of erosion in its external liquidity and fiscal flexibility.

The Bombay Stock Exchange (BSE) 30-share Sensitive index (Sensex) closed lower at 16668.01 with a loss 50.86 points. It touched a high of 16893.81 intra-day. The fall was led by capital goods stocks at 1.64 per cent followed by healthcare 1.34 per cent, realty 1.02 per cent and oil and gas 0.75 per cent. Except FMCG and Consumer durables all BSE sectoral indices ended in the red.

On the National Stock Exchange, the broader 50-share Nifty lost 14.25 points at 5054.10.

Rupee drops 32 paise

Meanwhile, the rupee fell to a near one-week low after Standard & Poor's warning. It closed at 55.74/75 a dollar against Friday's close of 55.42/43. It fell to 55.82 intra-day, its lowest since June 5. The rupee recorded its lowest against the U.S. dollar at 56.52 on May 31.

The S&P report states that the Indian government's reaction to potentially slower growth and greater vulnerability to economic shocks could largely determine whether the country can maintain an investment-grade rating or become the first “fallen angel” among the BRIC nations. “I take this event as positive,” said G. Chokkalingam, Chief Investment Officer, Centrum Wealth Management Ltd.

Standard & Poor's credit analyst Joydeep Mukerji said that “setbacks or reversals in India's path toward a more liberal economy could hurt its long-term growth prospects and, therefore, its credit quality.”