Moody's rating goes against people's mood: Sibal

Chelsea West
November 19, 2017

Along with that, Moody's Investors Service also upgraded nine state-owned companies including ONGC, IOC, HPCL, NTPC and GAIL and four financial institutions including SBI and HDFC and EXIM Bank.

U.S. credit rating agency Moody's on Friday upgraded India's sovereign rating to Baa2 from its lowest investment grade of Baa, while changing the outlook for the country's rating to stable from positive, and said its was based on the Indian government's "wide-ranging programme of economic and institutional reforms".

The rating upgrade elicited a quick response from the government with Finance Minister Arun Jaitley saying it is a "belated recognition of positive steps taken in the last few years". But, the momentum failed to carry on as investors rushed in to shave profit as the index closed the day at 33,342.80, up 235.98 points - or 0.71 per cent.

European stocks were subdued in early trade as the euro strengthened against the dollar and investors digested comments by ECB President Mario Draghi at the Frankfurt European Banking Congress.

Analysts said the upgrade would lead to higher capital inflows, strengthening the rupee, and ease India Inc's access to overseas capital at lower rates. Moody's has also upgraded India's local currency senior unsecured rating to Baa2 from Baa3 and its short-term local currency rating to P-2 from P-3.

Meanwhile, the markets cheered the latest development with BSE's Sensex and 50-share Nifty closing with a more than 50 basis points (bps) gains. The Nifty crossed the 10,300-mark but ended at 10,283.60, up 68.85 points. "While a number of reforms remain at the design phase, Moody's believes that those implemented to date will advance the government's objective of improving business climate, enhancing productivity, stimulating investment, and ultimately fostering strong and sustainable growth", it added.

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This is India's first rating upgrade since 2004, when it was upgraded to Baa3 from Ba1.

Other global rating agencies were, however, more cautious in their outlook.

Atul Pandey, Associate Partner, Khaitan and Co said the present government in last three years has carried out several economic regulatory reforms which has attracted more foreign investment and has also eased doing of business in India. "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 with similarly robust levels of growth from FY2019 onward", it said.

"Longer term, India's growth potential is significantly higher than most other Baa-rated sovereigns", the agency said.

By improving India's credit rating, Moody's has acknowledged the fact that the decisions were right, considering the future of India's economic growth.

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