Nomura says low likelihood of sovereign rating downgrade

NEW DELHI: Financial services provider Nomura today said there is a low probablity of sovereign rating downgrade of India as economic activity is expected to show some rebound shortly.

"We believe there is a low likelihood of a rating downgrade actually occurring as we expect the economy to see some cyclical rebound in the near term, the debt-to-GDP ratio is likely to remain stable, and the fiscal deficit should not worsen substantially," Nomura said in a report.

The only risk to this view is forex reserves declining materially, it said.

Earlier in the dat, S&P revised the outlook on India's sovereign credit rating to negative from stable, while reaffirming its BBB- rating.

The rating agency cited slowing investment and economic growth, and the widening current account deficit as the main reasons.

S&P expects the government to face headwinds in implementing policy measures to improve its fiscal and macroeconomic parameters in the near future, given the unfavourable political environment.

It assigned a one-in-three chance to an actual downgrade within the next 24 months.

A downgrade is possible if growth prospects or the political climate worsens, the external position deteriorates, or if fiscal reforms slow, it said.