Fitch Rating has lowered its outlook for India to “negative” from “stable” saying the coronavirus outbreak had an unfavourable impact on the economy.

“The coronavirus pandemic has significantly weakened India’s growth outlook for this year and exposed the challenges associated with a high public-debt burden,” Fitch said in a statement.

Fitch maintained its rating for India at “BBB-”, which is the lowest investment grade rating and stands a notch above junk.

Fitch expects economic activity to contract 5 per cent in the fiscal year ending March 2021, before rebounding 9.5 per cent in 2021-22. “Rebound is expected, driven majorly by low-base effect.”

The credit ratings agency noted that the pandemic “significantly weakened India’s growth for the year and exposed challenges associated with a high public debt burden”.

Two major credit rating agencies — Fitch and Moody’s — now have a negative outlook, while S&P has a stable outlook. All three however have given India their lowest investment grade rating.

“Based on the commentary by the three rating agencies, there are three main tests India must face. First, the extent of recovery from the pandemic. Second, whether burgeoning financial stability risks can be contained. And whether the damage to the medium-term fiscal outlook can be addressed by a credible post-pandemic fiscal consolidation roadmap,” Nomura said in a research note.

Nomura said it expected the next rating action as early as the end of 2020 or the start of 2021.

Fitch said the humanitarian and health needs have been pressing, but the government has shown expenditure restraint so far due to the already high public-debt burden going into the crisis, with additional relief spending representing only about 1 per cent of GDP. India’s fiscal metrics has deteriorated significantly.

Tata Motors blow

Moody’s Investors Service on Thursday said it has downgraded Tata Motors rating as the company faces tough market conditions amid the coronavirus pandemic.

The rating agency said it has downgraded Tata Motors' corporate family rating (CFR) and senior unsecured instruments rating to B1 from Ba3.

“The outlook on all ratings has been changed to negative from ratings under review,” Moody’s said.