Influenced by the Modi government’s economic reforms, Moody’s Investors Service has upgraded India’s local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to ‘stable’ from ‘positive’. Moody’s has also upgraded the nation’s local currency senior unsecured rating to Baa2 from Baa3 and its short-term local currency rating to P-2 from P-3. 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.
Now the question arises: How will the ratings upgrade impact India, investors and the investment climate of the country? Experts say that the ratings upgrade is a big boost for India as it will not only enhance its overall image globally, but also make both global and local investors more confident about its growth potential. This will, in turn, give a further boost to investments.
“The India rating upgrade by Moody’s has happened after a gap of 13 years. This is an extremely positive development with far-reaching consequences. This move should help in making India both a more attractive as well as an acceptable destination for various pension and other long-term global investment funds. More importantly, this is likely lower down the cost of borrowing of both government as well as the corporate sector. Rupee is also likely to strengthen thereby somewhat cushioning the impact of rising crude prices,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.
For an investor too there are many positives. For instance, equity markets are likely to remain buoyant as this move both improves the profitability of corporates and increases flow of global money into Indian equities. “It also improves the chances of Indian corporates raising both equity as well as low-cost debt from overseas. Restructuring of old loans along with funds available for further expansions will propel corporate earnings higher, creating a more durable and sustained bull market going forward,” says Kapur.
Jitendra P S Solanki, MCSI, CTEP, CFP and Financial Planner for Special Needs Dependent Families, says, “Moody’s increasing ratings for India is positive for investors. This enhancement in rating emerges from the current economic measures India has taken and the expectation that the reforms will bring sustainable growth to our economy, which will eventually lower the debt India has piled up. This change in rating will surely change the outlook of global investors as they will see an immense growth potential in India in the coming years. In my view, this change should bring long-term investors like pension funds to the country primarily in the debt market, making it more stable.”