Fitch Downgrades India's Credit Outlook to Negative

According to Fitch, the outlook revision reflects heightened risks that India's medium to long-term growth potential would gradually deteriorate if further structural reforms are not hastened, including measures to enhance the effectiveness of the government and create a more positive operational environment for business and private investments. Fitch further downgrades the credit outlook of seven PSUs such as NTPC, SAIL, IOC, PFC, GAIL, REC and NHPC.

It noted that, “This is because the IDRs of Fitch-rated seven state-owned enterprises are either equated to the sovereign’s or their stand-alone credit profiles are currently at, or constrained by, the sovereign’s IDRs as per Fitch’s parent and subsidiary rating linkage methodology.”

But Fitch also said that there will be no immediate effect on the Reliance Industries’ and said, “This is because RIL’s FC IDR is constrained by India’s country ceiling (‘BBB-’) and will be lowered if India’s country ceiling is revised down in future.”

Basu told the reporters that, “There is herd mentality among policy makers, herd mentality among corporate. There is also little bit of herding among credit rating agencies. We were pretty much expecting Fitch to do so.” He added, “Fitch outlook change to me is not worrying, simply because I was anticipating it. I feel most people were anticipating it.”

Basu also said, "Even among rating agencies, there is an element of looking over your shoulders, to see what others are doing and given the statement from S&P, it was only to be expected that there would be similar kind of move on part of Fitch."