Ratings Firm, Fitch revised India‟s sovereign rating outlook to stable from negative as it affirmed the long-term rating at BBB-. It cited government efforts towards fiscal consolidation as one of the most important reasons for this upward revision in the outlook.
The fuel price reforms announced in January 2013 and the finance minister‟s commitment to limiting the FY14 fiscal deficit to 4.8% of GDP have reduced fears of fiscal slippage. Efforts towards addressing “structural impediments” to investment and economic growth, pronounced signs of easing inflationary pressures and relative strength in India‟s external situation despite current account deterioration were cited as important factors driving this decision.
This positive development should bring some relief to foreign debt investors, who have withdrawn c.USD 3.27bn from Indian debt since 22 May. Given the favourable impact of the change in outlook on the INR, we expect debt outflows to slow down
The revision of India‟s outlook to stable by Fitch should provide some respite to Indian spreads in the near term. We maintain our Neutral stance on Indian corporates and our Overweight position in Indian banks.
