Moody’s downgrades India’s outlook to negative

08 Nov 2019

Indian equities have been jittery after peaking at record-highs, following Moody’s lowering its outlook for the country.

In Friday trading, the Bombay Stock Exchange’s Sensex index fell 0.8% having risen to a record of 40,684 points a day earlier.
 
Indian stocks had been rallying since the government confirmed in September that it would cut corporate taxes from 35% to 25% and that it would invest $1.4bn to reinvigorate the real estate sector.
 
However, Moody’s, the U.S.-based credit-rating agency, halted this bull run.
 
“Moody's decision to change the outlook to negative reflects increasing risks that economic growth will remain materially lower than in the past, partly reflecting lower government and policy effectiveness at addressing long-standing economic and institutional weaknesses than Moody's had previously estimated, leading to a gradual rise in the debt burden from already high levels,” it said in a statement.

It added: “The prospects of further reforms that would support business investment and growth at high levels and significantly broaden the narrow tax base, have diminished.”
 
India’s finance ministry reacted to the development saying: “India continues to be among the fastest growing major economies in the world. India’s relative standing remains unaffected.
 
“The fundamentals of the economy remain quite robust with inflation under check and bond yields low. India continues to offer strong prospects of growth in near and medium term.”

The Ministry also pointed to the IMF in their latest World Economic Outlook stating that the Indian economy is set to grow at 6.1% in 2019, picking up to 7% in 2020.
 
But analysts at Nomura noted: “With tight domestic credit conditions persisting amid weak global demand, we now expect India’s recovery to be delayed and the pick-up to remain below potential.”

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