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Business News/ Politics / Policy/  India’s chances of sovereign ratings upgrade brightening: Moody’s
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India’s chances of sovereign ratings upgrade brightening: Moody’s

India's chances of a sovereign rating upgrade over the next 12-18 months is greater, says Moody's analyst

Moody’s became the first rating agency to upgrade the country’s rating outlook. Currently, its peers Standard and Poor’s and Fitch Ratings have assigned stable grade to India’s rating outlook, which is one notch above negative grade. Photo: AFPPremium
Moody’s became the first rating agency to upgrade the country’s rating outlook. Currently, its peers Standard and Poor’s and Fitch Ratings have assigned stable grade to India’s rating outlook, which is one notch above negative grade. Photo: AFP

New Delhi: Rating agency Moody’s Investors Service on Thursday gave a much-needed booster to the Narendra Modi government ahead of the prime minister’s visit to France, Germany and Canada by revising India’s sovereign credit rating outlook to positive from stable.

The outlook upgrade is a bet that the policy measures by the government will allow India’s growth to outperform that of its peers in the medium term and improve its macroeconomic, infrastructure and institutional profile.

However, the agency reiterated India’s sovereign credit rating at the lowest investment grade of Baa3, pointing out its weaker performance relative to peers on fiscal, inflation and infrastructure-related metrics.

The decision to upgrade the country’s rating outlook was taken at a meeting of the rating committee of Moody’s on 7 April. “The main points raised during the discussion were: The issuer’s economic fundamentals, including its economic strength, have materially increased. The issuer’s institutional strength/framework has materially increased. The issuer’s fiscal or financial strength, including its debt profile, has not materially changed," the rating agency said in a statement.

India’s chances of a sovereign rating upgrade over the next 12-18 months is greater as investments are expected to revive, growth to improve and inflation to stay modest, Moody’s sovereign rating analyst Atsi Sheth said on Thursday.

Sheth said the ratings agency would focus on implementation of infrastructure projects, policy support to investments and the banking sector’s performance against bad loans for a rating upgrade.

“And now with the positive outlook, we’re saying that over the next 12-18 months, if things continue to improve, the rating level might also go up," Sheth told Reuters.

“It is likely that there’s a greater chance of rating going up than staying the same or going down."

Sheth said the biggest risks to India’s rating upgrade could emerge from shocks to agriculture which have increased after the unseasonal rains in India’s northern and central grain-growing parts before the harvest.

In addition, Sheth said global risk aversion, as well as inability of policymakers to proceed with reforms, could be the likely hurdles.

Moody’s became the first rating agency to upgrade the country’s rating outlook. Currently, its peers Standard and Poor’s and Fitch Ratings have assigned stable grade to India’s rating outlook, which is one notch above negative grade.

The S&P, which had been threatening to further downgrade India to junk status, upgraded India’s sovereign rating outlook to stable from negative in September last year after a majority government took charge in New Delhi.

However, in February, S&P said improvements in India’s weak fiscal balance sheet are likely to be gradual and unlikely to lead to a rating upgrade in the next three to five years. After finance minister Arun Jaitley presented his budget later that month, S&P reiterated its stand holding that the budget is unlikely to have any impact on the country’s sovereign credit rating.

Moody’s on Thursday said it believes that recent measures of addressing inflation, keeping external balances in check, simplifying the regulatory regime for investors, increasing foreign direct investment, and facilitating infrastructure development will reduce some of India’s sovereign credit constraints.

“Many of these measures are at relatively early stages of design and have yet to be implemented. According to Moody’s, the ability of policymakers to strengthen India’s sovereign credit profile to a level consistent with a higher rating will become apparent over the next 12-18 months," it said in a press statement.

The rating agency said evidence over the coming months that policymakers are likely to be successful in their efforts to introduce growth-enhancing and growth-stabilizing economic and institutional reforms would lead to the rating being considered for an upgrade.

“On the other hand, the rating outlook would be revised to stable if economic, fiscal and institutional strengthening appeared unlikely, or banking system metrics remained weak or balance of payments risks rose," it cautioned.

Reuters contributed to this story.

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Published: 09 Apr 2015, 07:50 AM IST
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