Fitch raises India outlook to stable, cuts GDP estimate

Fitch Ratings raised its outlook on India’s long-term foreign currency issuer default rating from stable to negative, citing diminishing risks to medium-term growth and easing weaknesses in the financial sector.

“The Indian economy continues to experience a strong recovery from the shock of the Covid-19 pandemic,” the ratings firm said in a statement on Friday. “We expect robust growth versus peers to support credit metrics in line with the current rating.” Standard and Poor’s and Moody’s had previously raised their outlook on India to stable. S&P has assigned a BBB- rating to India, while Moody’s has a Baa3 rating. Fitch also affirmed its BBB- rating, the lowest investment grade, but cut its economic growth estimate for FY23 to 7.8% from 8.5% it forecast in March, citing the inflationary impact of soaring energy and commodity prices on India’s growth momentum.

The World Bank had also lowered its GDP growth forecast to 7.5% from April’s estimate of 8% due to soaring inflation, supply chain disruptions and tensions. sustained geopolitics. The Reserve Bank of India expects the economy to grow by 7.2% for the current year. India’s GDP grew by 8.7% in the previous fiscal year.

The rating agency noted that high nominal GDP growth has facilitated a near-term reduction in the debt-to-GDP ratio, although public finances remain credit weak, with the debt ratio stabilizing overall. The rating also takes into account India’s external resilience due to strong foreign exchange reserves, Fitch said.

According to Fitch, India’s strong growth outlook relative to its peers is a key supporting factor for the rating and will support a gradual improvement in credit metrics. “We expect growth of around 7% from FY24 to FY27, supported by the Center’s infrastructure push, the reform program and easing pressures in the financial sector,” he said. he said, adding that the forecast presented challenges, given the uneven nature of the economic recovery. and risks related to the implementation of infrastructure spending and reforms.

He also said India’s debt-to-GDP ratio would benefit in the near term from a sharp acceleration in nominal GDP growth. According to the rating company, the debt-to-GDP ratio will drop to 83% in FY23, from a peak of 87.6% in FY21, but it remains high compared to the median of 56 % of peer group.

“Beyond FY23, however, our expectations of a modest fiscal deficit tightening and rising sovereign borrowing costs will cause the debt-to-equity ratio to rise slightly to around 84% by FY23. 27, even assuming nominal GDP growth of around 10.5%,” he added. It said.

In terms of inflation, the rating agency said the key economic indicator will remain elevated in the current financial year at 6.9% due to the sharp rise in global commodity prices and pressures under underlying demand.

The Reserve Bank of India (RBI) has raised its repo rate by 90 basis points to 4.90% in just over a month, signaling growing concerns that inflation could breach its target range of 2 6% for an extended period.

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