Virendra Pandit
New Delhi: Although S&P revised India’s outlook to ‘positive’ and maintained its ‘BBB-‘ rating on Wednesday, cautious stock markets shed some weight ahead of June 4 when results of the ongoing Lok Sabha election will be declared.
The election campaign for the seventh and last phase of parliamentary elections will close on Thursday for the June 1 vote.
Amid this market sentiment, global rating agency Standard & Poor (S&P) revised its outlook on Wednesday for the Indian economy from ‘stable’ to ‘positive’ while affirming the overall rating at ‘BBB-’, showing the investment grade rating.
The move comes amid India’s robust economic growth, which yielded positive impacts on credit metrics. The agency noted that the government’s significant infrastructure investments are poised to bolster India’s growth trajectory, and expressed confidence in the continuity of the South Asian nation’s reform agenda, irrespective of the outcome of the ongoing parliamentary elections.
In May 2023, S&P Global Ratings upheld India’s sovereign rating at ‘BBB-’ for the long term and ‘A-3’ for the short term, maintaining a stable outlook. It highlighted sound economic fundamentals expected to support growth over the next two to three years, despite concerns over weak fiscal performance and low GDP per capita.
Its Wednesday announcement aligns with similar ratings from other global rating agencies, including Fitch and Moody’s, which also assigned the lowest investment grade rating to India with a stable outlook.
“We expect sound economic fundamentals to underpin the growth momentum over the next two to three years,” S&P said, according to a media report.
Investors closely monitor these ratings as indicators of a country’s creditworthiness, which can impact borrowing costs and overall investor sentiment.
Meanwhile, on Wednesday, stock markets saw intense selling. The S&P BSE Sensex declined 631 points intraday to hit a low of 74,539. The NSE Nifty50 slipped 183 points to a low of 22,705.
SBI Life, HDFC Life, ICICI Bank, Ultratech Cement, Tech Mahindra, HDFC Bank, Bajaj Finserv, Axis Bank, Tata Consumer Products, BPCL, and ONGC were the top laggards in the large-cap space, falling between 1 percent and 3 percent.
In the broader market, the BSE MidCap index was below the flat line, slipping nearly 1 percent intraday.
The BSE SmallCap index, however, was the only gainer, up over half a percent.
Experts attribute the ongoing market volatility to caution ahead of the Lok Sabha election result. due on June 4, 2024.
While markets are confident of the ruling Bharatiya Janata Party (BJP) returning to power for a third consecutive term after 2014, they fear a low margin of victory may stop the government from taking bold reforms.
According to a Bloomberg News survey of market participants, Indian stocks need Prime Minister Narendra Modi’s party to win more than 303 seats in the general election to extend their record rally.
A smaller majority for the ruling BJP may lead to a drop of about 2 percent in the NSE Nifty50 Index.
Volatility marked other markets as well. Asia-Pacific markets ended sharply lower on Wednesday with Kospi, and Hang Seng, tumbling 1.7 percent each. ASX200 dropped 1.3 percent, and Nikkei fell 0.8 percent.
European stock markets, too, opened lower on Wednesday following their worst session for a month on Tuesday.
FTSE100 was down 0.22 percent, DAX 0.4 percent, CAC40 0.5 percent, and Stoxx600 0.4 percent.
On Wall Street, futures tied to Dow Jones, S&P500, and Nasdaq, too, were down 0.3 percent each in the pre-market session.
Wall Street will track the second estimate of Q1CY24 GDP data, to be released on Thursday, May 30.