Monday, June 11, 2012

S&P Threatens To Junk India's Credit Rating?

“Slowing GDP growth and political roadblocks to economic policymaking could put India at a risk of losing its investment-grade rating which is just one notch above speculative-grade and carries a negative outlook,” said S&P primary credit analysts Takahira Ogawa and Joydeep Mukherji. S&P had earlier in the year downgraded India's credit rating, from stable to negative. Markets in India fell after the release of this note. 

It is however interesting that, S&P had last year downgraded United States as well. However investors had given it (S&P) a thumbs down, by pushing up American stocks (US stocks are up 30% from the lows seen last year), further denting their credibility, which was anyways low.  S&P, we must remember, played a key role in the economic bust of 2008, as its credit analysts (as well as those from other credit rating firms) had wrongly labeled  the junk credit default swaps as being rated AAA (Tripple A) , the highest rating denoting the instruments were risk free, leading to massive blow up for several investors including banks that relied on their rating. 

What is shameful and ironic for the firm further is that this comes a day after Spain, which S&P rates a couple of notches above India, sought 100 billion Euro bail out. Which raises the questions as to why is S&P so quick to denounce India's economic prospects and is willing to go soft on other nations? What is interesting is that post the downgrade in the US,  the head of S&P (who, interesting of Indian origin) was made to step down due to external pressure. 

That said, there are problems that India must focus on and improve governance and pick up pace of reforms to win back investor conference that seems to be dwindling by the day. These investors were not waiting for S&P to tell them that. 

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