Sunday, April 29, 2012
When Standard & Poor Ratings Services cut India's outlook
When Standard & Poor Ratings Services cut India's outlook to negative from stable on Wednesday, it sent some shock waves reverberating across sectors. The premier agency has cited slow progress on its fiscal situation and deteriorating economic indicators as the primary reason behind the revision of outlook to BBB(-). Standard & Poor stated that India's investment and economic growth had slowed, and hence the revised outlook for the Indian economy to negative from stable. Moreover, if the situation doesn't improve in another two years, S&P has warned to downgrade India's ratings. Not many would have forgotten that the same agency downgraded the long-term sovereign credit rating on the United States from AAA to AA+, last August. Now, it has also revised the outlooks for Infosys Limited, Tata Consultancy Services and Wipro Limited from stable to negative. The ratings agency, however, accorded its 'BBB+' long-term corporate credit ratings for the three IT companies. "Our ratings on Indian information technology companies reflect our 'BBB+' transfer and convertibility (T&C) assessment of India," S&P stated. It would serve as a warning to potential foreign investors and domestic ones as well in equal measure, as they would think twice before investing into government bonds and securities. On the development, Wipro's chief financial officer Suresh Senapaty said that it was 'quite unfortunate' and that the Standard & Poor had responded earlier than required.
Terming it as a concern for the country, he said, "Even though there will be investments, the flow of the same may be low." What can the Indian government do before gloom befalls it? It can reduce the fiscal deficit, "which is about Rs.. 6 lakh crore, through, for instance, the 2G auction, which is expected to fetch Rs.. 2 lakh crore. Or, through offering subsidy on diesel, things will get better," says Vivek Kulkarni, former Information Technology and Biotechnology secretary of Karnataka. The current scenario, he points out, is certainly not recession, as one is concluded after economic growth gets stalled for two consecutive quarters. "Our economy is growing well at 6 per cent." If the government needs so much of money from outside, then there might not be much for private companies to borrow, which would hamper their growth, says Kulkarni, adding that the 15 per cent devaluation of the rupee has helped Indian IT sector to maintain profit margins of about the same level in dollar terms. "In terms of their recent results, only TCS did well. Infosys's was not encouraging and Wipro conceded the minimal growth was majorly due to its Business process outsourcing operations." Kulkarni accuses the government for not encouraging the IT industry, as it used to earlier. "Bangalore grew to this extent because of IT jobs. In case there is not much government support, jobs will go down. If IT exports go up, then rupee will become stronger." That, in his words, will help the recovery of Indian economy, which would help it avert the downgrading of ratings.
Source: CIOL World
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