Moody's upgrades India's sovereign rating to Baa2 with stable outlook

Nothing to celebrate Moody's rating Yechury

CPI-M General Secretary Sitaram Yechury addresses a press conference in New Delhi

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

Meanwhile the Sensex closed 236 points higher after the Moody's upgrade, while the NSE index rose almost 70 points.

In the case of HDFC Bank, the rating agency has also upgraded the bank's baseline credit assessment (BCA) and adjusted it to Baa2 from Baa3, it said.

BSE index jumped by 235.98 points after this news came out; while Nifty closed 68.85 points up.

The unit rose as high as 64.62 per dollar, the highest in about two weeks, but ended half a point higher at 65.01 a dollar.

"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."

Moody's, however, warned the rating could be downgraded "if the health of the banking system deteriorated significantly or external vulnerability increased sharply". In the latest World Bank's ease of doing business ranking, India moved up 30 places to 100th, while the Moody's upgrade is another validation of the government's reforms. Incidentally, Moody's had upped the outlook for India in 2015 and the upgrade was actually more a question of when rather than whether?

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

Even if recent economic reforms have seen near-term negative growth impacts, there have been some benefits.

"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. The second quarter's numbers would be out by the end of this month.

Moody's also expected the real GDP growth to moderate to 6.7% in the fiscal year ending in March 2018.

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. "We believe that it is a belated recognition of all the positive steps which have been taken in India in the last few years, which has contributed to strengthening of the Indian economy", said Arun Jaitley on Friday. The general outlook on the rating is "stable".

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