Analysts and economists today termed Standard & Poor's decision to lower the country's rating outlook close to junk status (BBB-) as 'reactionary and out of context', saying there has been 'no immediate trigger'.
"It is not warranted at all now, though concerns remain. It is too premature for S&P to do it now. These issues were in place already. S&P is very reactive but Moody's is balanced," State Bank of India economic research head Brinda Jagirdas said.
Terming the action as 'not a downgrade but only highlights the already existing concerns' which the government is seized of, she said these concerns were known and did not warrant a change in the outlook.
"There is no trigger for S&P to do it now. So I would say this is only a reactive action."
S&P today cut its India outlook to negative from stable, and warned of a sovereign downgrade in two years if the fiscal and current account situations do not improve and the political climate continues to worsen.
"The outlook revision reflects our view of at least a one-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish or progress on fiscal reforms remains slow in a weakened political setting," said S&P credit analyst Takahira Ogawa.
BBB- is the lowest investment grade rating.
"A downgrade is likely if the country's economic growth prospects is dim, its external position deteriorates, its political climate worsens, or fiscal reforms slow," the agency said.
But Jagirdas said the move will not have any impact on the cost of funds for either the banks or the corporates.
Pointing out that 'the country has good savings and investment rates', she said 'our fiscal deficit is much better than most of the European economies'.
BBB+ for IT giants
Standard & Poor's also revised outlook for three top Indian information technology companies - Infosys, Tata Consultancy Services (TCS) and Wipro - to negative from stable.
At the same time, it affirmed it 'BBB+' long-term corporate credit ratings on these entities.
"Our ratings on Indian information technology companies reflect our 'BBB+' transfer and convertibility (T&C) assessment of India. We could lower the ratings on these companies if we revise downward our T&C assessment," S&P said in a statement.
At the Bombay Stock Exchange, the Infosys scrip ended flat at Rs.2,348.80 while TCS closed 1.92 per cent down at Rs.1,172.30.
The scrip of India's third largest IT company fell 7.29 per cent at Rs.410.15 after it reported muted guidance for the April-June quarter.