Banks, PSUs too upgraded; may improve access to foreign funds

20 November, 2017, 03:02 | Author: Manuel Hopkins
  • Moody's also expected the real GDP growth to moderate to 6.7% in the fiscal year ending in March 2018. Reuters F

A sovereign ratings upgrade of the Indian government's bonds and of some domestic industry majors from United States credit rating agency Moody's on Friday lifted the key Indian equity indices to their new intra-day record highs. The Sensex rose 235.98 points to close at 33,342.80, even after paring initial gains.

Maintaining that the upgrading was based on New Delhi's "wide-ranging programme of economic and institutional reforms", Moody's simultaneously changed the outlook for the country's rating to stable from positive and upgraded India's local and foreign currency issuer rating to Baa2 from Baa3. The Nifty crossed the 10,300-mark but ended at 10,283.60, up 68.85 points.

On November 13, Moody's Investors Service, the global rating agency, upgraded India's sovereign rating to Baa2 from Baa3 for the first time since 2004.

The decision by Moody's is a shot in the arm for Prime Minister Narendra Modi's government and the reforms it has pushed through, and comes just weeks after the World Bank moved India up 30 places in its annual ease of doing business rankings.

Moody's improved rating for India means that investors can now have more confidence and more clarity regarding India's future, and they will be more open to investing there.

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"After a gap of 13 years, global rating agency Moody's on Friday upgraded India's sovereign credit rating from its lowest investment grade to Baa2 and gave a thumbs up to two big-ticket reforms - demonetisation and GST â€" calling them remarkable.

However, the rating agency has warned that if fiscal metrics and the outlook for general government fiscal consolidation deteriorates materially, then the ratings can be improved.

Moody's pegged GDP growth at 6.7 per cent in FY18 and 7.5 per cent in FY19, with similarly robust levels of growth from FY20.

Although the rating agency agreed that a lot remains to be done such as fixing the GST's implementation challenges, weak private sector investment and the slow resolution of banks' bad loans, Moody's said it expects at least some of these issues to be addressed over time and will help further improve the Indian government's effectiveness and overall institutional framework. The agency also said that India's growth potential is significantly higher than most other Baa-rated sovereigns.

The Rupee which was on a roller-coaster ride this year due to many adverse developments such as the expected Federal Reserve tightening of rates and a possible surge in India's current account deficit due to a surge in oil prices. The general outlook on the rating is "stable".

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