S&P's changing the outlook from stable to negative is seen as a 'warning'. What sort of 'warning'? Well, if things get worse about a year down the road- if the fiscal deficit remains as high or if growth goes down to 5.3%-, India will face a downgrade.
Some warning, that! Any sophomore could tell you that if things worsen, the rating goes down; if things get better, there is an upgrade. Mind you, S&P does not say that things will get worse or that they are likely to get worse.
What do we make of this warning? I know of nobody else who thinks growth could be down to 5.3%. As for the fiscal situation, S&P might have made some mention of the fact that India must be among the very few countries whose public debt to GDP ratio has gone down in recent years; for a whole range of countries, the debt to GDP ratio has shot down. Moreover, while the centre's finances have worsened, state finances are showing an improving trend.
The threat of a downgrade of some Indian companies, including HDFC Bank, means even less. These ratings are partly linked to the sovereign rating, so if there is a sovereign downgrade, it will be reflected in the firm's downgrade. Let me say one thing, however: anybody who suggests that conditions at HDFC Bank warrant a re-look at its rating needs to have his head examined