S&P Global Ratings stated on Thursday that the ongoing hostilities between India and Pakistan increase the credit risks for both nations, with any further escalation potentially exerting downward pressure on sovereign credit ratings. Currently, S&P has rated India at 'BBB-' with a positive outlook and Pakistan at 'CCC+' with a stable outlook. However, S&P does not anticipate an immediate impact on the sovereign ratings. It expects tensions to remain elevated for the next two to three weeks, with the possibility of significant military actions from both sides.

S&P highlighted that the regional credit risks have escalated due to the India-Pakistan conflict, but it projects the intense military actions to be temporary, with a period of sporadic and contained confrontations likely to follow. Following the Pahalgam massacre, India launched 'Operation Sindoor' on Wednesday, targeting nine terrorist sites in Pakistan and Pakistan-occupied Kashmir. In response, Pakistani leaders have expressed the right to retaliate but also indicated a willingness to de-escalate if India takes steps to reduce tensions.

S&P expects India to maintain robust economic growth, which will support fiscal improvements, and for Pakistan to focus on economic recovery and fiscal stability. Both nations are unlikely to prolong the current tensions, S&P noted. However, a prolonged military conflict would hinder Pakistan's efforts to stabilize its economy and external metrics. For India, such a conflict could deter foreign investors who are already navigating an uncertain global economic environment.

S&P also warned that the ongoing situation carries the risk of miscalculations or accidental clashes, which could escalate beyond the control of either side, further harming credit risks. If tensions don't de-escalate in the coming weeks, the downward pressure on sovereign credit ratings will intensify. S&P anticipates that tensions will remain high for a few weeks before de-escalating, with limited long-term negative impact on sovereign credit metrics. Meanwhile, Moody's also expressed concern about the potential downside risks to India's growth forecasts due to geopolitical tensions, such as the India-Pakistan conflict.