ETMarkets.com poll: 2018 will be about growth revival, but rating upgrade unlikely
By Amit Mudgill
NEW DELHI: With a populist Union Budget on the cards and fiscal deficit most likely to overshoot the FY18 target, India is unlikely to get a rating upgrade from global rating agencies such as Standard & Poor’s or Fitch Ratings in 2018 or by the next general election, feel 10 of the leading brokerages which participated in the ETMarket.com’s year-end market survey.
Reforms that the Modi government has implemented over the past three years are expected to bear fruit in the long run, but are unlikely to earn it full marks from the rating agencies in the immediate future, they said.
While widening fiscal deficit would be a key worry, other parameters such as low per capita GDP, slower jobs growth and inequality may go against a rating upgrade, they felt.
Analysts said Moody’s recent rating upgrade was driven by its assessment that reforms carried out by the Modi government would enhance India’s structural credit strengths. The view was that recent reforms would invariably translate into a strong growth trajectory for the economy and improve India’s global competitiveness. But the other two rating agencies might like to see those reforms translate into actual growth.
“We assume S&P would like to see the reforms translate into actual ground-level growth in the Indian economy. Our view remains consistent with the thought process that the reforms initiated are structural in nature and would help expand the formal economy. It is just a matter of time that the world starts looking at India more positively as and when the Indian consumption juggernaut starts rolling,” said Prasanth Prabhakaran, Senior President & CEO, YES Securities.
As of today, the government is planning an additional expenditure of Rs 66,113 crore in FY18, which could hurt the fiscal math for the year ending March 31.
The government’s fiscal deficit at Rs 5.25 lakh crore touched 96 per cent of the full-year estimate at the end of October.
Most analysts say the government would overshoot its target of bringing down fiscal deficit to 3.2 per cent of GDP by 20- 30 basis points.
“S&P or Fitch upgrade is unlikely to happen in 2018 since the fiscal deficit and current account deficit (CAD) will be under pressure in 2018. Firm crude price is likely to impact CAD. GST rebalancing and disruptions will have short-term headwinds in the form of revenue shortfall. Revenue collections are likely to improve markedly only in FY2019. Therefore a rating upgrade is likely only in 2019,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Standard & Poor’s in November retained its ‘BBB-minus’ rating and ‘stable’ outlook on India citing low per capita income, high government debt and huge fiscal deficit.
But after a 13-year wait, Moody’s Investors Service upgraded India’s sovereign rating to Baa2 from Baa3.
“As far as Fitch is concerned, considering its expressed disappointment over India’s less-than-expected GDP growth in recent quarters and expectation that recent reform measures would result in higher growth over the next two years, a ratings upgrade seems unlikely anytime soon,” Jayant Manglik, President at Religare Securities said.
Rating is a function of many factors such as per capita income, growth and employment opportunities, income inequalities, fiscal conditions, said Jimeet Modi, CEO at Samco Securities. “Getting all these right in a short time span would be a little unrealistic, but India will move many notches ahead in the rating matrix in next five years,” Modi said.
Deepak Jasani, Head of Retail Research, HDFC Securities, said S&P has already expressed reservations about upgrading the India’s credit rating till the GoI’s debt situation improves.
“It may be difficult to expect another rating upgrade soon as the government is likely to overshoot its fiscal deficit target for FY18,” he said.
That said, the market might not build in any expectation of rating upgrade since it does not clearly understand what all goes into a rating decision, says Suhas Harinarayan, Managing Director – Institutional Equity Research at JM Financial Institutional Securities.
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Via:: Economic Times – Stocks