India has higher growth potential: Moody's

Rating agency Moody’s on Friday upgraded India's sovereign credit rating on the optimism that the recent reforms measures introduced by the Modi government would spur economic growth

Moody's ratings and Modi's expectations are finally on the same page

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".

The agency said it was lifting India's rating to Baa2 from Baa3 and changed its rating outlook to stable from positive, as risks to India's credit profile were broadly balanced. The Nifty crossed the 10,300-mark but ended at 10,283.60, up 68.85 points. The rupee reached an intra-day high of Rs 64.62 per dollar before closing at 65.02 per dollar, up 0.47 per cent from its Thursday's close of 65.32. The 10-year bond yield, which fell 12 basis points on Friday, ended just 1 basis point lower.

For the government, the upgrade serves as a strong rebuttal for critics who have panned its handling of the economy - coming on the back of India's rise in the World Bank's ease of doing business index, and as a culmination of persistent efforts to get rating agencies to acknowledge India's improved macroeconomic situation. Incidentally, Moody's had upped the outlook for India in 2015 and the upgrade was actually more a question of when rather than whether?

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Moody's improved rating for India means that investors can now have more confidence and more clarity regarding India's future, and they will be more open to investing there.

India's economic growth had slipped to an over three-year low of 5.7 per cent in the first quarter.

"Moody's believes that those (reforms) implemented to date will advance the government's objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and ultimately fostering strong and sustainable growth". The second quarter's numbers would be out by the end of this month.

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Moody's expects GDP growth to moderate to 6.7 per cent in the fiscal year ending in March 2018.

On the other hand, top bankers said the upgrade is good for the markets as capital flows into the country - which were already at a high level before the upgrade - will get a leg-up as a large part of worldwide capital allocations is rating linked.

Long term, India's growth potential is significantly higher than most other Baa-rated sovereigns, it added.

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The Rupee which was on a roller-coaster ride this year due to many adverse developments such as the expected Federal Reserve tightening of rates and a possible surge in India's current account deficit due to a surge in oil prices. HDFC Chairman Deepak Parekh said, "I've always felt India's rating was far below than what it should be". The general outlook on the rating is "stable".

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