Related Insights
S&P Global Ratings upgraded India’s sovereign rating higher within the investment grade universe, to BBB from BBB-, with a stable outlook. This comes after the agency had raised the country’s outlook to positive in May 2024, ahead of the results of then-held general elections. With this first upgrade in nearly 18years, India is now on par with Indonesia and Mexico. The newsbreak saw the rupee briefly pare losses, along with a modest gain in 10Y bonds. Onshore markets are closed on Friday to mark Independence Day.
Positive impetus on the back of this upgrade will help lower the risk premium on the sovereign’s debt as well as ease corporates’ offshore borrowing costs. The favourable rating action was a product of improvement in fiscal consolidation, success in anchoring inflationary expectations and maintaining a sound external position. The centre’s budget targeted FY26 deficit at -4.4% of GDP, half from Covid highs. Additionally, with this year’s Budget focused on aligning deficits with overall debt levels, the cumulative – centre and state – deficit and debt levels are expected to recede in the coming years, aided by healthy growth momentum as well as consolidation efforts. As it stands, fiscal risks are partially mitigated by an almost complete reliance on domestic financing of the government debt. S&P projected a decrease in the general government level to 78% of GDP by FY26 vs 83% in FY25. Growth is projected at a realistic 6.5% (DBSf FY26: 6.3%), along with inflation to settle within 4.0-4.5% until 2028.
Assessment on India’s external balance was favourable, marked by a strong reserves stock (comfortable coverage ratios), narrow current account deficits and contained external debt levels. Strong legislative and executive institutions represent an additional credit strength, besides a strong commitment to reforms. In the near-term, S&P expects the impact of the sharp increase in tariffs imposed by the US, 25% baseline plus 25% penalty, to be manageable, given the domestic demand-oriented nature of growth. Overall, this upgrade was long time in the making, given the structural improvements in the past decade. Beyond the kneejerk reaction, we expect the INR assets to draw direction from global developments, including dollar movements, progress on trade talks and US FOMC’s signals, besides domestic catalysts.
Topic
Explore more
E & S Macro StrategyGENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates)
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.