Will Fitch, Moody's follow S&P? Rating agencies await clarity on elections, says Nomura

S&P Global Ratings' shift in stance on India outlook may prove to be the harbinger of more activism by rating agencies in the near future, Nomura said on Thursday. The foreign brokerage believes that other rating agencies are awaiting clarity on the election results and the priorities of the new government before revisiting their respective rating outlooks. 

At present, Fitch has India at BBB- with a stable outlook, with its last rating action commentary in January -- just before the interim Budget announcement. It expected FY25 fiscal deficit at 5.4 per cent of GDP against the government’s eventual target of 5.1 per cent of GDP). Fitch had expressed concerns over the “difficult consolidation path ” to 4.5 per cent of GDP by FY26.

However, Nomura believes these risks have de-escalated since then, with Fitch recently flagging the larger-than-expected RBI dividends to the government and asserting: "sustained deficit reduction underpinned, particularly if underpinned by durable revenue- raising reforms, would be positive for India’s sovereign rating fundamentals over the medium term. ” 

Nomura said the recent commentary by Moody’s suggested a possibly higher bar for a rating upgrade. In the past, Moody's flagged higher political risks, citing the unrest in Manipur and border tensions

Following the interim Budget announcement, comments by a senior Moody’s official suggested that a key impediment for a rating upgrade is that India’s deficit and debt levels remain higher than pre-pandemic levels, when Moody’s had downgraded India to Baa2 from Baa3 rating, Nomura said.