India faces a downgrade by sovereign credit assessor Moody’s Investors Service if the slowdown in Asia’s third-largest economy is worsened by the countrywide coronavirus lockdown. “There is a rising risk of an imminent downgrade by Moody’s to Baa3 ‘stable’ from Baa2 ‘negative,’’ analysts Sonal Varma and Aurodeep Nandi wrote in a note to clients. Nomura also expects Fitch to change its outlook on India to negative because of deteriorating debt dynamics and its assessment that the nation has a poor fiscal track record. “India’s Achilles heel on ratings is its parlous state of fiscal affairs and the risk of a sharp deterioration of general government debt from about 70% of GDP to potentially about 75%-80%,’’ the analysts wrote. Even after the lockdown, due for a review on May 3, is lifted the economy faces difficulty in reviving as it must grapple with problems of raw material supplies, demand shortages, declining availability of labour and the need to ensure social distancing in a sanitised environment. “With states’ budgets combined, the consolidated fiscal deficit will expand to about 9.5%- 10% of GDP, close to record highs in the recent past,’’ it said. Shrinking GDP along with spending to support to key industries, including the banking sector, is likely to significantly increase the public debt-to-GDP ratio. In a review of Indian banks, BNP Paribas analyst Avneesh Sukhija forecasts earnings will drop about by 40% on average during the FY21 as fewer people and businesses take out loans and mortgages. The securities firm prefers banks over NBFCs with lenders having the advantage of a diversified loan book, higher capital adequacy levels and a stable deposit franchise. NBFCs could also face headwinds in the near term, including asset and liability management mismatches, collection issues, concentrated exposure and a longer recovery timeframe, it said.
You May Also Like