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The report sent the rupee and stocks lower, but S&P analyst Takahira Ogawa said "nothing has changed" from April, when the agency downgraded the outlook on India's credit rating.
"We are simply providing further explanation of our views on India sovereign," he said.
India's sovereign rating is BBB minus, the lowest investment grade rating. In April, S&P lowered its outlook on the rating for Asia's third-largest economy to negative from stable.
"Slowing GDP growth and political roadblocks to economic policymaking are just some of the factors pushing up the risk that India could lose its investment-grade rating," S&P said in a statement on Monday.
The report is titled: "Will India Be The First BRIC Fallen Angel?"
Indian stocks .BSESN fell into negative territory after the S&P statement, while the rupee skidded to as much as 55.82 to the dollar, a near one-week low, from 55.45 earlier.
The benchmark 10-year bond yield rose 2 basis points after the statement was released. Traders said the bond markets were not greatly affected because offshore investors hold a small share of the market.
Kumar Rachapudi, fixed income strategist at Barclays Capital in Singapore, said the moves in the rupiah and bonds may not have been warranted in response to the S&P news.
"While the report is new, the content in itself is probably not," the strategist said. "The discussion in this report has largely been covered in their previous report when S&P revised the outlook in April."
The latest report comes after India posted March quarter annual growth of 5.3 percent, its weakest pace in nine years and far below expectations.
"Setbacks or reversals in India's path toward a more liberal economy could hurt its long-term growth prospects and, therefore, its credit quality," said Standard & Poor's credit analyst Joydeep Mukerji.
The so-called BRIC economies consist of Brazil, Russia, India and China. India has the lowest S&P rating of all the BRIC countries, and is the only one with a negative outlook from the rating agency, it said in the report.
While India's credit rating is under pressure for a downgrade, fast-rising emerging market Indonesia is on the up and has just joined the ranks of investment-grade nations. Many see it as the new "I" in the BRIC acronym.
"The combination of a weakening political context for further reform, along with economic deceleration, raises the risk that the government may take modest steps backward away from economic liberalization in the event of unexpected economic shocks," Mukerji said in S&P's Monday statement.
The government's inability to push through reforms is widely blamed for yawning current account and fiscal deficits that have driven the rupee to a record low against the dollar. In addition to slowing growth, India is plagued by persistently high inflation.
"S&P's warning clearly highlights the challenge facing the Indian economy, which has been crippled by the complete dysfunctionality of the government machinery," said Upasna Bharadwaj, economist at ING Vysya Bank in Mumbai.
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