Moody’s changes India’s outlook to positive, affirms Baa3 rating

By: and |
Updated: April 9, 2015 2:23:13 PM

Moody's Investors Service changed India's outlook to positive, saying there was an increasing probability...

Moody’s changes India’s outlook to positive, affirms Baa3 rating, Moodys, Moodys upgrades Indias rating, moody's india rating, moody's report on india, Moodys sovereign rating, indias outlook moodys, Baa3 rating moodys, Baa3 rating indias outlook, indias outlook positive, moodys indias outlook positive, liquidity, indias outlook, economy newsMoody?s said it expected structural advantages, supported by relatively benign global commodity prices and liquidity conditions, will keep India?s growth higher than that of its peers over the rating horizon. (Reuters)

Moody‘s ratings revised India’s sovereign rating outlook to “positive” from “stable” on Thursday as it expects the actions by policymakers will enhance the country’s economic strength in the medium term.

Moody’s also said that it expected structural advantages, supported by relatively benign commodity prices and liquidity conditions globally, will keep India’s growth above its peers over the rating horizon.

(Also Read: India ratings upgrade by Moody’s validates govt agenda: Chief Economic Advisor Arvind Subramanian)

The outlook revision was announced before Indian markets opened on Thursday. Analysts said they expected bank stocks to rise and the rupee to strengthen on the upgrade.

The investor-friendly Narendra Modi government, which came to power last May promising faster growth, more jobs and quick clearances, has taken measures to fast-track clearances for investment projects, boost infrastructure investment and remove policy uncertainty in mining and coal sectors.

The government has also relaxed foreign investments in sectors such as defence, insurance, e-commerce, railways and eased steps to allow businesses to acquire land and set up factories.

“India’s policymakers are establishing a framework that will likely allow India’s growth to continue to outperform that of its peers over medium term and improve India’s macro-economic, infrastructure and institutional profile,” Moody’s said in its statement.

However, Moody’s stopped short of raising the sovereign credit rating due to relative weakness in fiscal, inflation, infrastructure and poor asset quality among Indian banks.

CONSTRAINED CREDIT PROFILE

“Recurrent inflationary pressures, occasional balance of payments pressures, and an uncertain regulatory environment have contributed to periods of volatility in growth, and have exposed India to external and financial shocks, constraining its credit profile,” Moody’s said.

Moody’s has a Baa3 rating on India.

After a recent revision in the methodology of measuring gross domestic product, which raised a lot of scepticism from policymakers including government and central bank officials, India registered growth of 7.5 percent in the December quarter, higher than China’s.

Under this new method, the Reserve Bank of India expects India to growth at 7.8 percent for 2015/16, lower than the government’s estimate of 8.0-8.5 percent.

The government has been pitching to rating agencies to improve India’s credit rating, citing reforms, and on Thursday officials were to quick to welcome Moody’s improved outlook.

“Upgrade of outlook proves government is moving in the right direction … it validates India’s commitment on fiscal discipline,” India’s chief economic adviser Arvind Subramanian said on news channel CNBC TV18.

Moody’s upgrades India’s rating outlook to ‘positive’

PTI

In a big vote of confidence in the Narendra Modi-led government, Moody’s today raised India’s credit rating outlook to ‘positive’ and said an upgrade in its sovereign rating is also possible in the next 12-18 months.

India’s sovereign rating currently stands at ‘Baa3’, the lowest investment grade — just a notch above ‘junk’ status.

The sovereign rating and outlook for a country are often referred to as key parameters by foreign investors and global bodies to gauge its investment climate.

Upgrading the outlook from ‘stable’ to ‘positive’, the global rating agency said that India has grown faster than many other peers over the last decade and the actions of the policymakers should further boost the country’s economic and financial strength in coming years.

Commenting on the upgrade, Finance Minister Arun Jaitley said the action is “significant”, but the government has to do more.

“Moody’s has changed rating outlook to positive from stable and affirms Baa3 rating. The upgrade in outlook is significant but we’ve to do more,” Jaitley tweeted.

Moody’s sovereign rating analyst Atsi Sheth told PTI, “Our positive rating outlook for India reflects our view that the probability has now increased that over the next twelve to eighteen months India’s sovereign credit fundamentals will improve to levels consistent with a rating higher than its current Baa3 rating.”

Moody’s, however, said that the Indian economy is still heavily exposed to external and financial shocks because of which it has maintained ‘Baa3’ rating for the country.

Since 2004, Moody’s has rated India at Baa3 — at par with countries like Indonesia, Iceland and Turkey.

Other global agencies — S&P and Fitch — also have the same credit rating for India on grounds including high inflation, huge debt levels of the central and state governments, infrastructure sector problems and huge bad loans in the banking system.

Standard & Poor’s had recently upgraded its India outlook to ‘stable’ while Fitch Ratings has had a ‘stable’ outlook for the country’s credit rating since 2013.

The agency said that a rating upgrade going forward would depend on these positives propelling growth.

“There is an increasing probability that actions by the policymakers will enhance the country’s economic strength and, in turn, the sovereign’s financial strength over coming years,” Moody’s said.

“India has grown faster than similarly rated peers over the last decade due to favourable demographics, economic diversity, as well as high savings and investment rates,” it added.

Minister of State for Finance, Jayant Sinha said the NDA government has restored the faith of investors and rating agencies on the growth outlook of the Indian economy.

“Moody’s decision continues to reaffirm that rating agencies, global investors and our own domestic businesses have faith in India’s growth outlook and our financial strength as a sovereign,” he told reporters here.

The macro-economic situation, Sinha said, “has improved dramatically in last 10 months, obviously due to actions that we have taken as far as fiscal policy is concerned.”

Chief Economic Advisor Arvind Subramanian said that the “upgrade of outlook proves that the government is moving in the right direction … It validates India’s commitment on fiscal discipline.”

Commenting on Moody’s action, Revenue Secretary Shaktikanta Das said it will improve confidence of investors in India.

“An important component of this positive outlook is the whole change in the taxation environment which is taking place over the last several months. A number of steps have been taken to position a non-adversarial tax administration,” Das said.

Finance Secretary Rajiv Mehrishi said this development affirms the positive programmes and policies announced in the Budget. “I hope the next stage would be upgradation of the ratings itself.”

The government has been pitching to rating agencies to improve India’s credit rating, citing several reforms measures and opening up of the economy.

Moody’s said: “Recurrent inflationary pressures, occasional balance of payments pressures, and an uncertain regulatory environment have contributed to periods of volatility in growth, and have exposed India to external and financial shocks, constraining its credit profile.”

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