{"id":114211,"date":"2021-05-13T03:43:10","date_gmt":"2021-05-13T03:43:10","guid":{"rendered":"https:\/\/fin2me.com\/?p=114211"},"modified":"2021-05-13T03:43:10","modified_gmt":"2021-05-13T03:43:10","slug":"analysis-indias-prized-investment-grade-status-hanging-by-a-thread","status":"publish","type":"post","link":"https:\/\/fin2me.com\/business\/analysis-indias-prized-investment-grade-status-hanging-by-a-thread\/","title":{"rendered":"Analysis: India's prized investment grade status hanging by a thread"},"content":{"rendered":"

LONDON (Reuters) – India\u2019s devastating COVID-19 crisis is making investors question more than ever whether after years of debt accumulation and patchy progress on reforms, a country touted as a future economic superpower still deserves its \u2018investment grade\u2019 status.<\/p>

FILE PHOTO: A bank employee maintains order as customers wait in lines to enter a bank during a 21-day nationwide lockdown to slow the spreading of coronavirus disease (COVID-19) in Agra, India, April 7, 2020. REUTERS\/Danish Siddiqui<\/figcaption>

A spate of downgrades last year had already left India\u2019s investment grade credit ratings hanging by a thread and the severity of the current virus wave is making the main agencies, S&P, Moody\u2019s and Fitch agitated again.<\/p>\n

All three firms have either cut – or warned they could cut – the country\u2019s growth forecasts in recent weeks and that government debt as a share of GDP will jump to a record 90% this year.<\/p>\n

In that respect though, the world\u2019s second most populous country has long been an anomaly.<\/p>\n

The median debt level for countries Fitch has in the BBB bracket – India is BBB- – and on a downgrade warning with both Fitch and Moody\u2019s – is currently around 55% and only 70% even for those languishing at the lowest depths of \u2018junk\u2019 grade.<\/p>\n

With COVID-19 pushing up debt almost everywhere and the ratings firms signalling they will wait for this latest wave to ease before any judgements, investors who buy rating-sensitive assets like bonds are making their own calls.<\/p>\n

\u201cWe still see India as investment grade,\u201d said NN Investment Partners\u2019 head of Asian Debt, Joep Huntjens, who thinks the country\u2019s economy will bounce back quickly. \u201cBut we do think there is at least a 50\/50 chance that at least one rating agency downgrades, probably next year\u201d.<\/p>\n

With calls growing for another national lockdown to tackle the new virus surge, plenty of others are wary too.<\/p>\n

JPMorgan says rating agencies are making \u201ca leap of faith\u201d by holding fire at the moment. M&G\u2019s Eldar Vakhitov says his firm\u2019s models have been flagging a downgrade, while UBS points out India will soon have the third highest debt level among big emerging markets after junk-rated Brazil and Argentina.<\/p>\n

UBS analysts also estimate India needs to grow at least 10% a year for public debt to stabilise and come down. It hasn\u2019t got anywhere near that since 1988, World Bank data shows. Last year\u2019s full lockdown saw the economy contract 24% in the first quarter and Moody\u2019s said this week it expects growth to settle at around 6% longer term.<\/p>\n

\u201cWe do see the risk that it (a downgrade) can definitely happen,\u201d said UBS\u2019s head of emerging market strategy Manik Narain. \u201cIt seems more a question of when rather than if\u201d.<\/p>\n

For a graphic on India\u2019s sovereign credit rating:<\/p>\n<\/p>\n

ANOTHER BRIC TO FALL?<\/h2>\n

Neither India\u2019s finance ministry nor its central bank responded to requests to discuss the risk of a downgrade but, as Brazil and South Africa have experienced, becoming a \u2018fallen angel\u2019 – as a demotion to junk is known in rating agency parlance – can set off a wave of problems.<\/p>\n

It automatically excludes government or corporate bonds from certain high-profile investment indexes, which means conservative funds – active managers as well as passive \u201ctrackers\u201d – sell out, aggravating the situation.<\/p>\n

India\u2019s government debt is not yet in most of those indexes, so the big issue will be the roughly $40 billion to $45 billion worth of investment grade corporate debt that is also likely to get cut.<\/p>\n

NN\u2019s Huntjens thinks around 90% of Indian IG corporates would be hit and while giants like Reliance might be spared, India\u2019s 7.4% share of JPMorgan\u2019s Asia Investment Grade Corporates Index means there would be plenty of selling.<\/p>\n

For a graphic on India\u2019s weight in the JPMorgan CEMBI corporate bond index:<\/p>\n<\/p>\n

CHASTENING<\/h2>\n

If a cut does come, it wouldn\u2019t be the first time India has lost investment grade status. It was first stripped in 1991 just a year after getting its initial S&P rating as a balance of payments crisis hit.<\/p>\n

A repeat now though would be a chastening moment for its nationalist leader Narendra Modi who rallies supporters on promises to advance India on the world stage and compete with the likes of China.<\/p>\n

While it has built up a healthy stock of currency reserves, its huge population of 1.4 billion means it still has the lowest prosperity level of any investment grade country when measured by GDP per capita of $2,164. China\u2019s figure is nearly $13,000.<\/p>\n

Subhash Chandra Garg, India\u2019s former economic affairs secretary, acknowledges the government\u2019s double-digit deficit and overall debt position are \u201cbad\u201d, but he doesn\u2019t think the ratings firms will cut again.<\/p>\n

\u201cA debt-to-GDP ratio of 90% is certainly a matter of great concern and these things cannot go on,\u201d Garg said. \u201cBut the fundamental view about India is that it is not a basket case, it is a strong economy.\u201d<\/p>\n

\u201cIn the end the debt levels need to come down and that can only happen if growth remains strong,\u201d NN\u2019s Huntjens added. \u201cAnd it can\u2019t just be based on (government)stimulus because then the debt just rises even higher\u201d.<\/p>\n

For a graphic on India\u2019s economy was sledgehammered by first COVID wave:<\/p>\n<\/p>\n

Source: Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

LONDON (Reuters) – India\u2019s devastating COVID-19 crisis is making investors question more than ever whether after years of debt accumulation and patchy progress on reforms, […]<\/p>\n","protected":false},"author":3,"featured_media":114210,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[],"yoast_head":"\nAnalysis: India's prized investment grade status hanging by a thread - Fin2me<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fin2me.com\/business\/analysis-indias-prized-investment-grade-status-hanging-by-a-thread\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Analysis: India's prized investment grade status hanging by a thread - Fin2me\" \/>\n<meta property=\"og:description\" content=\"LONDON (Reuters) – India\u2019s devastating COVID-19 crisis is making investors question more than ever whether after years of debt accumulation and patchy progress on reforms, [...]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/fin2me.com\/business\/analysis-indias-prized-investment-grade-status-hanging-by-a-thread\/\" \/>\n<meta property=\"og:site_name\" content=\"Fin2me\" \/>\n<meta property=\"article:published_time\" content=\"2021-05-13T03:43:10+00:00\" \/>\n<meta name=\"author\" content=\"Mark\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:image\" content=\"https:\/\/fin2me.com\/wp-content\/uploads\/2021\/05\/Analysis-Indias-prized-investment-grade-status-hanging-by-a-thread.jpg\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Mark\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/fin2me.com\/business\/analysis-indias-prized-investment-grade-status-hanging-by-a-thread\/\",\"url\":\"https:\/\/fin2me.com\/business\/analysis-indias-prized-investment-grade-status-hanging-by-a-thread\/\",\"name\":\"Analysis: India's prized investment grade status hanging by a thread - 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