Economists, though, believe the process of economic recovery could take more time than initially thought.
Moody’s said its ‘negative’ outlook partly reflects lower effectiveness of government and policy in addressing long-standing economic and institutional weaknesses than it had previously estimated. This is leading to a gradual rise in debt burden from already high levels, it said.
Moody’s was the only rating agency to have upgraded India’s ratings in November 2017. Many economists were surprised then, as the upgrade was made despite acute pressure on revenues following GST implementation.
“Rating agencies do their job a little later, a little slower, but markets are ahead. Ratings agencies look into the rear-view mirror. Stock market looks ahead. I think that is the fundamental difference,” said Srinivasan Subramanian of Axis Capital.
“I am not downplaying the gravity of the situation. But the market is looking positive because the government is responding at multiple levels across the entire spectrum. It may take a couple of quarters for the measures to show their effects. But when the rating agency is talking about today, markets are talking about tomorrow,” he told ET NOW.
Sandip Sabharwal of asksandipsabharwal.com in a tweet called the outlook ‘ridiculous’. He said the government compromised growth in trying to keep the rating agencies happy all this while.
That excessive focus on fiscal deficit is one of reasons behind slower growth, he said. “Nothing was achieved. They see nothing wrong in euro economies. Today, they have downgraded India Outlook on short-term growth concerns,” he said.
The Govt compromised growth in trying to keep rating agencies like @MoodysInvSvc happy Excessive focus on Fiscal De… https://t.co/IkzDrAieEa— sandip sabharwal (@sandipsabharwal) 1573178691000
The BSE Sensex shed just 69 points, 0.17 per cent, to trade at 40,584 after hitting a record high of 40,688 on Thursday.
"We do not set much score by Moody's downgrade of India's outlook on fiscal and growth risks. We think fiscal risks are overdone as our expected 0.5 per cent of GDP fiscal slippage comes from the corporate tax rate cut. We see the present slowdown as cyclical rather than structural, as Moody's indicates. " BofA-ML said in a note.
The brokerage said that Ministry of Finance may soon come out with a roadmap to fund the corporate tax rate cut. This will inevitably involve some temporary deficit financing by the RBI, with the inflationary impact offset by long-term reverse repos, it said.
But economists do believe the ongoing slowdown is here to stay for some time.
“We do agree with Moody’s underlying economic assessment. While there are tailwinds in the form of counter-cyclical macro policies and the government's continued commitment to reforms, the triple balance sheet problem has tightened credit conditions, hindered policy transmission, prolonged the balance sheet deleveraging process and constrained investment,” Sonal Varma of Nomura India said in a note.
In a separate note, the foreign brokerage said an acceleration in earnings downgrades amid re-rating of market multiples should lead to muted upside at an overall market level. The brokerage pegged its year-end Nifty target at 12,545.
The Finance Ministry reacted to Moody’s downgrade, saying India still is among the world’s fastest-growing economies.
It said the government has undertaken a series of financial reforms to strengthen the economy as a whole. The government has also proactively taken policy decisions in response to the global slowdown, it said.
The fundamentals of the economy remain quite robust with inflation under check and bond yields low. Press release… https://t.co/sbeDwu1K63— NSitharamanOffice (@nsitharamanoffc) 1573188813000
24 Comments on this Story
Rajendra swain317 days ago
Congratulation to my beloved for their response to my comments.As India is a secular country and man isevolved from monkey,it isnot so important likethat of religious institutions but farms,factory,community hall,medical hospital,,teachnical instiution along with zoo,parks statuew of non weapon lover like Krisna,Buddha,Jesus,Gandhiji,Mother Teresa,Florescence Nightingale,Bhima Bvhoi and soon as mighty lover is outdated.It is sure future citizens will discard the mighty lover to be well come by leaders who have no faith on weapon,which
is a destruct-or but for farms and factory which
Vijay Jain323 days ago
if these morons knew about economy then 2008 crisis would not have happened ... always lagging behind because of lack of wisdom to apply practical knowledge along with bookish knowledge
Naresh Narang323 days ago
analyats always want to see good in every event. any event they will show you how either its the start of the good times or the bad times have ended. and the future will always be good.