Fitch Ratings said it has revised the outlook on ratings of six government-owned firms such as Indian Oil Corp (IOC), NTPC and GAIL to 'negative' from 'stable', following a change in outlook on sovereign India rating. The PSUs whose rating outlook has been revised include IOC, Bharat Petroleum Corp Ltd (BPCL), Oil India Ltd (OIL), GAIL India Ltd, Power Grid Corp of India Ltd and NTPC Ltd.
"Fitch Ratings 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," it said in a statement.
Also, Fitch revised the outlook on Hindustan Petroleum Corp Ltd (HPCL), which is a subsidiary of state-owned Oil and Natural Gas Corp (ONGC), to negative from stable. The rating agency also revised the outlook on private sector Adani Transmission Ltd's rating to negative from stable.
"The Negative Outlook on India reflects the country's weakened growth prospects and challenges associated with a high public-debt burden," it said. Fitch said it expects India's GDP to contract by 5 per cent in the fiscal year ending March 2021 (FY21) following strict lockdown measures imposed since March 25 to curb the spread of coronavirus.
It forecast the economy to recover and expand by 9.5 per cent in FY22, mainly driven by a low-base effect. "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.
"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," the statement said. India's fiscal metrics have deteriorated significantly, despite the government's expenditure restraint, due to the impact of the severe growth slowdown on revenue, the fiscal deficit and public-sector debt ratios.
Fitch expects general government debt to jump to 84.5 per cent of GDP in FY21 from an estimated 71 per cent of GDP in FY20. Weak implementation of fiscal rules stipulated in the Fiscal Responsibility and Budget Management Act contributes to Fitch's view that a speedy fiscal improvement after the pandemic recedes is unlikely.
Fitch 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. "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," it said.