Moody's upgrade India's credit rating after 13 years

Nov 19, 2017, 00:54
Moody's upgrade India's credit rating after 13 years

"The decision to upgrade the ratings is underpinned by Moody's expectation that continued progress on economic and institutional reforms will, over time, enhance India's high growth potential and its large and stable financing base for government debt, and will likely contribute to a gradual decline in the general government debt burden over the medium term", the agency's press release says. "Baa3" was the lowest rating in the investment grade - just a notch above the "junk" status.

Banks were the biggest gainers after the Moody's upgraded the Government of India's local and foreign currency issuer ratings.

Ranen Banerjee, partner - public finance and economics, PwC India, saw the enhancement of India's rating as "global confidence on the ability and intent of the government to adhere to the fiscal consolidation roadmap of narrowing the fiscal deficit and paring the debt stock".

Congress leader Kapil Sibal on Saturday said the upgradation of India's rating by USA credit rating agency Moody's was not in sync with the "mood of the people".

Anis Chakravarty, lead economist, Deloitte India, said Moody's rating upgrade "can be expected to bring buoyancy in equity and debt markets".

United States credit rating agency Moody's on Friday upgraded India's sovereign rating to Baa2 from its lowest investment grade of Baa3 after 13 years. The resolution of bank non-performing assets would be of supreme significance to revive the investment cycle and economic growth, stated ANZ.

Arvind Chari, Head, Fixed Income & Alternatives, Quantum Advisors, said the ratings upgrade seems to have come at a wrong time as the government is facing pressures on the fiscal front. "This comes amidst slew of global recognitions", he said in a tweet.

In a statement, it further said: "While India's high debt burden remains a constraint on the country's credit profile, Moody's believes that the reforms put in place have reduced the risk of a sharp increase in debt, even in potential downside scenarios".

"However, as disruption fades, assisted by recent government measures to support SMEs and exporters with GST compliance, real GDP growth will rise to 7.5% in FY2018 (2018-19), with similarly robust levels of growth from FY2019 (2019-20) onward".

"We will have to see how the bond yields will move in the near term because the world market is choppy", said Jayesh Mehta, country treasurer, BofAML.

Measures such as demonetisation, the Aadhaar system of biometric accounts, and targeted delivery of benefits through the direct benefit transfer (DBT) would reduce informality in the economy, it said. Add to these the revenue uncertainties from implementation of the goods and services tax (GST) - compounded by last Friday's decision to drastically prune the number of items attracting the top 28 per cent rate - and it has made the foreign exchange and bond markets edgy of late.