After S&P, Moody's warns that India may face downgrade

Ratings agency Moody's Investors Service Inc on Wednesday indicated that India's sovereign rating outlook will depend on the depth and extent of the current economic downturn and the trends in the balance of payments situation.

On Tuesday, Standard & Poor's maintained its negative outlook on India's BBB minus rating, the lowest investment grade. It warned that the chances of India being downgraded are more than one in three.

Moody's said India's sovereign credit profile in the fiscal year up to 31 March will depend on the growth outlook in the US, the European Union and China, the interest rate outlook after US quantitative easing tapers off and the trend in commodity prices, as well as domestic factors such as farm output, domestic interest rates and the 2014 national election, the rating.

Foreign funds pulled a net $2.3 billion from Indian bonds and stocks last month, exchange data shows, amid speculation the US will trim monetary stimulus, Bloomberg reported on Tuesday.

Moody's and Fitch Ratings still have a stable outlook on India at their lowest investment grade rating.

The Indian economy grew at its slowest pace in four years at 4.4 per cent in the June quarter, compared with 4.8 per cent in the three months ended March, belying hopes that the economy has bottomed out.

Atsi Sheth, vice-president at Moody's, said in a statement on Wednesday that India's growth slowdown appears to be steeper, its exchange rate depreciation has been among the steepest, and inflation and fiscal metrics remain weaker than its peers among developing nations.

The country's fiscal deficit in the April-July period was 62.8 per cent of the full-year target, compared with 51.5 per cent during the same period a year ago, official data showed on 30 August.

The government has exhausted 73 per cent of its revenue deficit target in the four months, compared with 61.3 per cent in the same period a year ago.