In a statement on Friday morning, the credit ratings agency said: "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".
As such, an upgrade of the sovereign rating also drove an upgrade of the bank's BCA and ratings. Standard & Poor's has kept India at the lowest investment grade just above junk status for a decade and Fitch Ratings for one year longer. The Narendra Modi government has been pitching for an upgrade for quite some time now citing various reforms initiatives.
The upgrade has not happened in isolation and for the last three years the India has been the fastest growing major economy, he added.
Modi's top colleagues saw it as a further victory for the prime minister after US -based research agency Pew released a survey this week that showed almost nine out of 10 Indians held a favorable opinion of him.
Sovereign credit rating indicates the level of risk faced by investors while investing in a country.
The agency has also upgraded HDFC Bank's baseline credit assessment (BCA) and adjusted BCA to baa2 from baa3. "The rating agency too has now confirmed it formally, which is welcome".
At 0550 GMT, the benchmark 10-year bond yield was down 9 basis points at 6.97 percent, the rupee was trading stronger at 64.84 per dollar versus the previous close of 65.3250, while the NSE share index () was 1.1 percent higher. "Looks like sentiments are going to become positive". In 2015, the rating outlook was changed from "stable" to "positive". "Many traders have burnt their fingers already and they are not ready to keep buying", said a dealer with a private bank.
The upgrade is a recognition of the reform process in India, particularly in the last 3-4 years, in which structural reforms placed India on a high growth trajectory, he said.