Moody's upgrade India's credit rating after 13 years

Investor wealth rises by Rs 1.71 lakh cr in bullish market

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

Upgradation of India's credit rating by Moody's is a big news, because it has been done after 14 years, and done at a time when business analysts and observers are severely questioning PM Modi's decisions to implement GST and ban 80% of currencies overnight.

The rupee surged as much as 1.1 per cent on Friday after global rating agency Moody's Investors Service upgraded India's local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook to "stable" from "positive".

BSE index jumped by 235.98 points after this news came out; while Nifty closed 68.85 points up. In its biggest single-day surge in six weeks, the rupee gained 31 paise to end at a one-week high of 65.01 against the dollar.

US-based Moody's upgraded India's sovereign credit rating by a notch to "Baa2" with a stable outlook citing improved growth prospects driven by economic and institutional reforms.

Moody's, however, warned the rating could be downgraded "if the health of the banking system deteriorated significantly or external vulnerability increased sharply".

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At a press conference held in Singapore earlier this week, Jaitley had said economic reforms may require government to deviate from the fiscal deficit targets.

"The rating upgrades for IOC, BPCL and HPCL follow the upgrade of the sovereign rating and reflect the strategic importance of the oil marketing companies as they own and operate the majority of the country's fuel refining entities and most of the fuel distribution infrastructure", Moody's said. Incidentally, Moody's had upped the outlook for India in 2015 and the upgrade was actually more a question of when rather than whether? The second quarter's numbers would be out by the end of this month. Debt market had received a whopping Rs 1.44 lakh crore and equity market Rs 51,755 crore of foreign investments in the current year even before the rating upgrade.

Moody's forecast India's economic growth at 6.7 percent for the fiscal year ending March 2018 and expects it to climb to 7.5 percent in the next financial year.

All Indian markets, including stocks, bonds and rupee, rallied on the ratings upgrade.

SBI Chairman Rajnish Kumar said the rating upgrade is a "re-affirmation of how the world views India, which has been long pending and a thumbs up to the various reform measures". "Moody's believes that the government's reforms will improve the business climate, enhance productivity, attract more investment and put India on a higher growth trajectory".

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