S&P warns India, Pakistan conflict could pressure credit metrics

Amid the escalating conflict between India and Pakistan, the global ratings agency S&P Global Ratings has stated that these confrontations pose risks that could affect the credit metrics of both countries and put downward pressure on their sovereign credit support. In the current scenario, it says there is no change in the sovereign credit rating of these two nations, though how the situation unfolds in the next two to three weeks will determine the overall impact.

S&P rates India at 'BBB-' with a positive outlook and Pakistan at 'CCC+' with a stable outlook. "The outbreak of hostilities between India and Pakistan has increased regional credit risks, especially for the two sovereigns involved. Our base case is for the intense military actions to be temporary, which will give way to a longer period of contained and sporadic confrontations," S&P Global Ratings stated, according to PTI. The ratings agency expects India to continue maintaining economic growth, saying that neither of the countries could afford to allow the current tensions to become prolonged.

India, on May 7, conducted high-precision air strikes under 'Operation Sindoor' across nine different Lashkar-e-Taiba (LeT) and Jaish-e-Mohammed (JeM) locations in Pakistan and Pakistan-occupied Kashmir. These were the specific locations where attacks against India were planned and directed, says the government.

The government today informed that Pakistan has increased the intensity of its unprovoked firing across the Line of Control using mortars and heavy-calibre artillery in areas in Kupwara, Baramulla, Uri, Poonch, Mendhar and Rajouri sectors in Jammu and Kashmir. In response, the Indian Armed Forces targeted Air Defence Radars and systems at several locations in Pakistan.

On the economic growth front, S&P, in its Economic Outlook for Asia-Pacific last month, said India's economic growth continues to surprise on the upside. It retained India's GDP forecast at 6.8% for the financial year 2024-25, with high interest rates and lower fiscal spur tempering demand in the non-agricultural sectors. For the financial year, S&P projected the country could grow at 6.9%, while it would see 7% growth each in the financial years 2026-27 and 2027-28.

Moody's last week, however, cut India's gross domestic product (GDP) growth projection for 2025 to 6.3% from 6.5% earlier, citing an expected slowdown in global economies amid the US trade policies and subsequent restrictions. However, the growth forecast for 2026 was retained at 6.5%.