Equity Markets Hit after India’s Economy Outlook Downgrade by Moodys

Ratings Agency Moody’s downgraded India’s economy outlook from stable to negative. Equity market was hit after the revision as negative sentiment marked investors after recent revision by Moody’s. The revision was down to India’s credit rating which revealed a further slowdown on India’s economic growth.

The Downgrade

Citing the banking crunch and rising debt, the international rating agency projected a fiscal deficit of 3.3% against the government’s projections of 3.7% in 2019-20. The agency’s revised outlook from stable to negative.

The GDP growth rate reached 5% being the lowest in six years. Further, it also said that there are fewer chances of stable growth at 8% or more. Also, it highlighted the credit crunch of non-banking financial institutions predicting no improvement in the coming time. However, it maintained India’s ability to pay short term loans as medium grade (Baa2).

Moody’s demoted its view on 21 companies relating to Information Technology, oil and gas, and infrastructure sector. Among financial institutions, it cut down ranked EXIM Bank, Indian Railway Finance Corporation, Hero Fin Crop, and Hudco.

BSE Sensex came down to 40,116.06. Nifty, on NSE, came down to 11,840.45. Besides, after the outlook, the Indian rupee depreciated by 0.6% to 71.75 dollar.

Mark Mobius calls the Downgrade by Moody’s “Erroneous”

Mark Mobius, founder of Mobius Capital Partners LLP, did not agree with Moody’s downgrade on India’s economic outlook. He further emphasized India’s economic slowdown might affect growth but reforms by the Government will kick in long term and have a big impact on the economy. The downgrade by moody’s seem a bit extreme and ‘erroneous’ after hearing comments from experts.

Finance Ministry’s Take

Reacting to Moody’s downgrade, the Finance Ministry said that India is still the fastest-growing economy. Besides, the government is involved in financial reforms that will help the economy to revive. Srinivasan Subramanian of Axis Capital concluded that markets think positively for tomorrow whereas the rating agency is concerned for present only. The government is taking several steps to tackle this slowdown. RBI is also playing its part by cutting interest rates to expand credit.

To conclude, economy outlook downgrade by Moodys seems incorrect. The economy will improve in the long run. However, despite the government’s efforts, the current projections are going down.