Moody’s Investors Service has upgraded its sovereign bond rating for India for just the first time in close to 14 years, saying that continued progress on institutional and economic reform will give the growth potential in the country a needed boost.
The agency added that it was lifting the rate in India from Baa3 to Baa2 and changed the rating outlook from positive to stable as risks to the credit profile of India were broadly balanced.
The upgrade by Moody’s, its first since early 2004, moves the rating of India to the second lowest level related to investment grade. S&P has keep its India rating at the lowest grade for investment, which is just one step higher than junk status, for the last decade, while Fitch Ratings has kept it there one year more.
Moody’s decision was a positive boost for the government of Prime Minister Narendra Modi and the reforms that have been pushed through. It comes only weeks after India was moved by the World Bank up 30 places in its yearly ranking for ease of doing business.
All markets in India including stock, rupee and bonds rallied on the upgrade by Moody’s.
One fund manager said it appeared as if Santa Claus already handed out his bag of goodies, adding that the move was positive overall for bonds, which had been trapped in a downward spiral.
Last year lobbying was done by India with Moody’s in an attempt of an upgrade, but that failed. The ratings agency increased doubts over the debt levels in the country and its fragile banks, and would not budge despite the criticism by the government of its methodology for ratings.
Modi’s top advisors are calling the upgrade another victory for him, after Pew, the research agency based in the U.S. released its survey earlier in the week that showed close to 9 out of 10 people in India held a favorable opinion of Modi.
However, some economists have said an upgrade at other rating agencies in the near future seemed unlikely.
An economist in London said that the implementing of reforms, weak investment and a subdued rural sector have slowed growth in the economy, while increased prices of oil have pushed risks higher.
One analyst said that the government would stay on a path of fiscal consolidation and target fiscal deficit at 3.1% of the country’s gross domestic product in its fiscal year ending March of 2018 and reach 3% for 2018-19.