India is not the only nation that has been downgraded, 21 other emerging market and developing economies have also faced some ratings action, a report by the State Bank of India said.
On Monday, ratings agency Moody’s downgraded the country’s sovereign rating from Baa2 to Baa3, which is one notch above junk grade, citing deteriorating fiscal position and stress in the financial system, apart from lack of economic reforms.
“However, India has not been alone to witness rating downgrade. So far, around 21 emerging and developing countries have registered either a rating and/ or outlook downgrade by the agency,” the SBI report said.
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The report by Group Chief Economic Adviser of SBI Soumya Kanti Ghosh said the ratings action did not come as a total surprise as emerging markets were always more susceptible to rating downgrades compared to developed economies in times of stress even if some of them had very low debt to GDP ratio.
“Pertinently, among all the different criteria used by credit rating agencies, perhaps growth considerations always take centre stage, and if historical trends are to be believed, even takes primacy over fiscal sustainability. There are instances where fiscal situation has deteriorated but the rating has been indeed upgraded,” the report said, adding that the rating action was not a reflection on the ability of the government to service its debt obligations.
The report also said the downgrade was unlikely to result in any immediate repercussions on exchange rates and bond spreads on offshore bonds.
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The domestic equity indices ended in green on Tuesday while the rupee also strengthened against the dollar.
“It seems that the downgrade was not completely unexpected. This is clearly visible in the data that market is not yet impacted by the rating downgrade. BSE Sensex and NSE Nifty rose and even rupee appreciated against the U.S. dollar,” the report said.