According to Harihar Krishnamoorthy, head of treasury at FirstRand Bank, the market was not perturbed by the outlook revision, but reacted to uncertainties over the US-China trade deal and changes in the MSCI Index.
The negative outlook “reflects that Moody’s will downgrade the ratings of these companies
if Moody’s downgrades the rating of India sovereign to Baa3 from Baa2”, the rating agency said in a statement.
Generally, the maximum rating that a company can get is limited by the rating of the sovereign, but there are certain exceptions, such as technology companies that derive most of their revenue from foreign shores.
“Ratings for Infosys and TCS are constrained to no more than two notches above the sovereign rating. Therefore, a sovereign rating downgrade will also result in downgrade of the A3 ratings of Infosys and TCS,” said Kaustubh Chaubal, Moody’s senior credit officer, in a statement.
The close links between EXIM Bank, HUDCO, IRFC, and SBI and the Indian government “is the key reason why Moody’s has changed the outlook for these companies to negative from stable, after doing the same for the sovereign rating”, it said.
HDFC Bank’s business has strong links with the sovereign credit profile, including by way of large direct exposure to government debt and exposure to common underlying operating conditions, it said.
Reacting to the cut, Singapore's DBS Bank said the worries over India's economic growth outlook will be over if fiscal consolidation takes place by prudent spending and higher revenues through privatisation receipts. Encouragingly, cyclical growth momentum is getting a hand from reduction in rates and surplus liquidity conditions, wrote Radhika Rao, Vice Senior President and Economist at DBS in Singapore.
Looking past the transient spike in inflation, there is room for monetary authorities to provide more support this year, added Rao in comments on Moody's Investors Service downgrade of India's economic outlook to negative from stable.