Is Moody's upgrade a thumbs up to BJP-Modi's reforms?

19 November, 2017, 02:29 | Author: Valerie Burke
  • Moody's upgrade to benefit financial sector the most Bankers

The upswing in the key indices came after the USA credit rating agency Moody's 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".

President of industry chamber Ficci Pankaj Patel said the development underlines the fact that India is moving in the right direction.

Moody's Investors Service on Friday upped the long-term ratings of four Indian financial institutions including SBI and HDFC Bank by a notch to Baa2 following the upgrade of the country's sovereign rating to the same level.

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

The rating upgrade by Moody's will help Indian corporates to reduce their borrowing costs in the medium term as it will lower the risk premium for the companies.

Finance Minister Arun Jaitley, who has been taking the flak for slowing economic growth and messy implementation of GST, said the jump in India's ranking in World Bank's ease of doing business by 42 places and Friday's rating upgrade vindicated the government's belief in their "reforms process".

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"Markets should worry that the government now having received the ratings upgrade, may actually slacken and relax its commitment to reducing fiscal deficit, as per the stated plan - especially, at a time when investors seem to be worrying about the same as reflected in the increase in bond yields of more than 50 bps since August 2017,"said Mr Chari. The Reserve Bank should cut rates on December 6 to signal a lending rate cut before the busy season with inflation well under control", Sen Gupta said". Moody's upgrade, its first since January 2004, moves India's rating to the second lowest level of investment grade.

"Longer term, India's growth potential is significantly higher than most other Baa-rated sovereigns", the agency said. The Sensex was trading 384.73 points or 1.16 per cent higher during the early session. Some of the gains were clipped later in the day. Recognition for recent economic reforms in India & 5000 year track record of no default.

"The intent of Modi government is to continue with its reform agenda", he said.

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.

Upgradation of India's credit rating by Moody's is a big news, because it has been done after 14 years, and done at a time when business analysts and observers are severely questioning PM Modi's decisions to implement GST and ban 80% of currencies overnight.

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