A bank employee maintains order as customers wait in lines to enter a bank during a 21-day nationwide lockdown to slow the spreading of coronavirus disease in Agra, India, April 7, 2020. REUTERS/Danish Siddiqui
The median debt level for countries Fitch has in the BBB bracket - India is BBB- - and on a downgrade warning with both Fitch and Moody's - is currently around 55% and only 70% even for those languishing at the lowest depths of 'junk' grade. With calls growing for another national lockdown to tackle the new virus surge, plenty of others are wary too.
"We do see the risk that it can definitely happen," said UBS's head of emerging market strategy Manik Narain. "It seems more a question of when rather than if".Neither India's finance ministry nor its central bank responded to requests to discuss the risk of a downgrade but, as Brazil and South Africa have experienced, becoming a ‘fallen angel’ - as a demotion to junk is known in rating agency parlance - can set off a wave of problems.
NN's Huntjens thinks around 90% of Indian IG corporates would be hit and while giants like Reliance might be spared, India's 7.4% share of JPMorgan's Asia Investment Grade Corporates Index means there would be plenty of selling.If a cut does come, it wouldn't be the first time India has lost investment grade status. It was first stripped in 1991 just a year after getting its initial S&P rating as a balance of payments crisis hit.