NTT DATA Group's S&P Downgrade and Index Delisting: Implications for Market Credibility and Capital Flows

The removal of NTT DATA Group Corporation (TSE: 9613) from the Nikkei 225 Index on July 2, 2025, marked a pivotal moment in its corporate historyNTT DATA Group Corporation (TSE:9613) dropped from Nikkei 225 Index^[5]. While the S&P International 700 index has not officially confirmed its exclusion, the broader financial reorganization—centered on NTT Corp.'s debt-funded acquisition of its listed subsidiary—has triggered a cascade of implications for market credibility, investor sentiment, and capital inflows.

Market Credibility: A Credit Rating Downgrade as a Warning Signal

S&P Global Ratings downgraded NTT Corp. from 'A' to 'A-' in June 2025, citing concerns over its deteriorating debt-to-EBITDA ratio, which is projected to rise from 2.8x to the mid-3x range post-acquisitionNTT downgraded to A- by S&P after NTT Data acquisition^[1]. This downgrade reflects a fundamental reassessment of NTT's financial discipline. By prioritizing aggressive growth—such as its ¥530 billion investment in SBI Sumishin Net Bank Ltd.—over fiscal prudence, NTT has signaled to rating agencies and investors that it is willing to tolerate higher leverage to fuel expansionNTT downgraded to A- by S&P after NTT Data acquisition^[1].

The tender offer for NTT Data Group, valued at ¥2.37 trillion, was financed largely through debt, exacerbating concerns about liquidity and cash flow stabilityNTT to Fully Acquire NTT Data Group for Over ¥2 …^[4]. S&P's decision to place NTT on CreditWatch with negative implications underscores the agency's skepticism about the company's ability to mitigate these risks through asset sales or cost-cutting measuresNTT Corp. credit ratings face potential downgrade at S&P^[3]. For global investors, this downgrade acts as a cautionary flag, eroding confidence in NTT's long-term creditworthiness.

Investor Sentiment: A Shift in Risk Perception

The acquisition and subsequent downgrade have altered investor perceptions of NTT DATA Group. While the company remains a dominant player in IT services, the delisting from the Nikkei 225—a key benchmark for Japanese equities—has reduced its visibility to passive investors tracking major indicesNTT DATA Group Corporation (TSE:9613) dropped from Nikkei 225 Index^[5]. This exclusion, though not directly tied to the S&P International 700, signals a broader trend: institutional investors are recalibrating their exposure to high-debt, growth-focused tech firms.

Moreover, the downgrade by S&P has amplified volatility in NTT's stock. According to Bloomberg data, the company's shares fell 8% in the week following the rating cut, reflecting immediate skepticism about its financial strategyNTT downgraded to A- by S&P after NTT Data acquisition^[1]. Retail and institutional investors alike are now scrutinizing NTT's balance sheet more closely, with many questioning whether the operational synergies from the acquisition will offset the increased borrowing costs.

Capital Inflows: A Double-Edged Sword

The debt-fueled acquisition has created a paradox for NTT. On one hand, the company's aggressive expansion could unlock new revenue streams, particularly in digital banking and cloud services. On the other, the higher leverage ratio may deter capital inflows from risk-averse investors. S&P's downgrade is likely to increase NTT's cost of debt, as bond yields for Japanese corporations with 'A-' ratings typically trade at a 50-70 basis point premium over 'A' rated peersS&P Global Ratings credit assessment methodology^[2].

For the S&P International 700 index, which includes large-cap global stocks, NTT's inclusion hinges on its market capitalization and liquidity. While the company's delisting from the Nikkei 225 does not automatically exclude it from the S&P index, the downgrade could pressure index providers to reassess its weighting. If NTT's stock price continues to decline due to investor uncertainty, its market cap could fall below the threshold for inclusion, indirectly affecting its presence in global benchmarksNTT to Fully Acquire NTT Data Group for Over ¥2 …^[4].

Conclusion: Navigating a High-Stakes Rebalancing

NTT DATA Group's strategic pivot toward growth at the expense of financial stability has triggered a reevaluation by credit agencies, investors, and index providers. While the S&P International 700 has not yet confirmed its removal, the downgrade and Nikkei 225 delisting highlight a broader shift in market dynamics. For NTT, the challenge lies in balancing its ambitious expansion with the need to restore fiscal discipline. Investors, meanwhile, must weigh the potential rewards of NTT's growth bets against the heightened risks of a leveraged balance sheet.

In the coming quarters, the company's ability to demonstrate improved cash flow and debt management will be critical. Until then, the downgrade serves as a stark reminder that even established tech giants are not immune to the consequences of overreaching.