On June 23, Fitch Ratings said it, “has revised the outlook on the long-term issuer default ratings (IDR) of six rated Indian government-related entities (GREs) to Negative from Stable. The entities’ long-term IDRs are affirmed at ‘BBB-‘. The rating action follows the revision of the Outlook on India’s ‘BBB-‘ sovereign rating to Negative from Stable on June 18”.
The six main PSU firms whose ratings have been degraded include IOC, BPCL, Oil India Ltd, GAIL India Ltd, Power Grid Corp of India Ltd and NTPC Ltd.
The rating agency has also degraded rating of Hindustan Petroleum Corp Ltd and Private Sector Company, Adani Transmission Ltd, from stable to now negative. It said, “The Negative Outlook on India reflects the country’s weakened growth prospects and challenges associated with a high public-debt burden”.
It has forecasted India’s GDP to go down by 5 per cent in FY21 but it expects a strong rebound with a GDP growth of 9.5 per cent in next fiscal year ending March 2022, mainly driven by a low base effect. The statement by the rating agency said, “It remains to be seen whether India can return to sustained growth rates of 6 per cent to 7 per cent as Fitch previously estimated, as it depends on the lasting impact of the pandemic, particularly in the financial sector.
It added, “India’s medium-term GDP growth outlook may be negatively affected by renewed asset-quality challenges in banks and liquidity issues in non-banking financial companies”.
Because of the Pandemic, government’s revenue declined humongously, PSU debt ratio kept increasing and fiscal deficit became larger due to which India’s fiscal metrics deteriorated which served as a considerable factor in recent outlook revision of Fitch.
It said that the government’s general debt is likely to increase to 84.5 per cent of GDP in FY21 from an estimated 71 per cent of GDP in FY20. According to Fitch, India is less likely to have a speedy fiscal rebound after the pandemic becomes less severe considering the weak implementation of required fiscal rules under the Fiscal Responsibility and Budget Management Act.
It said, “While ratings of IOC and BPCL are equalised with those of the sovereign given the strong likelihood of support, the same of GAIL and PowerGrid are stronger than that of the sovereign at ‘BBB’ and ‘bbb+’, respectively. However, their ratings are capped at the same level as that of the state, according to the criteria”.
It added, “The Outlook is Negative and we, therefore, do not expect positive rating action. The Outlook will be revised to Stable if the sovereign’s Outlook is revised to Stable provided the likelihood of support from the state remains strong”.