BENGALURU: Moody`s Investors Service cut India`s ratings outlook to `negative` from `stable`, citing increasing risks that Asia`s third largest economy will grow at a slower pace than in the past, sending stock markets nearly 1 per cent lower at Friday`s close.

However, Moody`s retained the country`s foreign and local currency ratings at `Baa2`.

The cut in outlook partly reflected government and policy ineffectiveness in addressing economic weakness, which has led to an increase in debt burden, Moody`s said.

The radngs agency alsocutits outlook for 21 Indian companies, including State Bank of India, Indian Oil Corporation Ltd, Infosys Ltd and NTPC Ltd to `negative` from `stable`.

India`s economy grew 5pc yearon-year between April and June, its weakest pace since 2013, which had prompted a slew of interest rate cuts by the central bank and forcing the government to cut corporate taxes sharply.

Moody`s now expects a government deficit of 3.7pc of GDPinthefiscalyearendinginMarch 2020, compared with a government target of 3.3pc.

`The depth and duration of India`s growth slowdown, prolonged financial stress among rural households, weak job creation, and, more recently, a credit crunch among non-bank financial institutions have increased the probability of a more entrenched slowdown,` Moody`s said.

The ratings agency said it does not expect the credit crunch among non-bank financial institutions to be resolved quickly.

In response, the finance ministry said the economy`s fundamentals remained `quite robust`.

`India continues to be among the fastest growing major economies in the world, India`s relative standing remains unaffected,` the ministry said in a statement.

However, Indian bourses inched lower, with the broader Nifty 50 index closing down 0.86pc. The rupee weakened to 71.25 against the dollar by 1019 GMT, versus Thursday`s close of 70.965.-Reuters