Moody’s India Upgrade Long Overdue: Government, Brokerages, Business Leaders And Investors React
How India’s Chief Economic Advisor, politicians and brokerage houses reacted to the Moody’s upgrade.
India’s first sovereign upgrade by Moody’s Investors Service in nearly 14 years has investors warming up to Prime Minister Narendra Modi’s string of economic and structural reforms. While the market was looking forward to an upgrade in the near future, the bump up to Baa2 from Baa3 this year came as a surprise since the long term impact of recent policy measures is still to play out, analysts and economists said in response to Moody’s decision to move up India’s rating.
The move was “long overdue,” Chief Economic Adviser Arvind Subramanian told BloombergQuint. “We have always argued that ratings companies did not fairly reflect the nation’s underlying macroeconomic strength.”
The Goods and Services Tax, in the long term, will definitely widen the tax base and be a “buoyant source of revenue” for the government, both by increasing the base and by adding compliance, Subramanian added.
One can expect GST to be a source of fiscal stability going forward.Arvind Subramanian, Chief Economic Adviser
Explaining the rationale behind the upgrade, Moody’s said reforms such as GST, measures to check the banking sector’s bad loans and direct benefit transfers, will help stabilise debt and enhance the country’s growth potential.
S&P, another credited global rating agency, declined to comment on the ratings upgrade while saying that “India will need to address its weak fiscal,” in response to a query from Bloomberg.
Here’s how India Inc, economists and market participants reacted.
The sovereign rating upgrade is an endorsement of India’s institutional and structural transformations ushered in by the Modi government, while maintaining fiscal prudence, said Rana Kapoor, managing director and chief executive officer of Yes Bank Ltd.
Such global ratifications will lower the cost of borrowing and boost investor confidence and conviction in the econRana Kapoor, Managing Director And Chief Executive Officer, Yes Bank
The ratings upgrade is “extremely positive” news for the country and will further bolster confidence in the economy, former RBI Governor Bimal Jalan told BloombergQuint in a phone interview.
Reforms such as the GST and the public sector bank recapitalisation will begin to show their constructive side on ground in another six months to one year once the initial disruptions fade, Jalan said.
Lower borrowing costs in international markets would be the most tangible benefit of the rating upgrade, Keki Mistry, vice president and chief executive officer of Housing Development Finance Corporation Ltd., told BloombergQuint.
Mistry addded that while India may continue to face short-term disruptions from GST and the Real Estate (Regulation and Development) Act, the Modi government's reforms will deliver long-term structural benefits.
MK Surana, HPCL
The improved rating will help Indian corporates raise money at cheaper rates in the international market, said HPCL Chairman and Managing Director MK Surana.
Kotak Mahindra AMC
Kotak Mahindra Asset Management Company’s Managing Director Nilesh Shah told BloombergQuint that rating agencies are finally acknowledging India’s economic track record.
They have ignored rising oil prices. They have not waited for state election results. They have not waited for the investment cycle to pick up. They have recongnised the government’s efforts to improve ease of doing business which they believe will enhance investment.Nilesh Shah, Managing Director, Kotak Mahindra AMC
The upgrade should be seen as “a relief to all classes” and will ensure that investors see upcoming reforms in positive light, said said Vivek Rajpal, senior rates strategist at Nomura.
However, he noted that the bond markets have recently suffered due to uncertainty on fiscal front, which “ironically” came with the implementation of reforms like GST, he said.
Brokerage and research firm Credit Suisse said the upgrade will stall the unwarranted self-reinforcing spike in the bond yield.
Moody’s upgrade improves the outlook for net foreign portfolio inflows over the next six months. FDI increase is also likely over time, as risk weights attached to India projects are brought down, but one needs one more agency to upgrade for it to be meaningful.Credit Suisse Research Note
The thumbs-up from Moody’s will also reduce near-term risks for the market and is also good for banks’ ability to raise foreign bonds, Credit Suisse said.
Aberdeen Standard Investment
Aberdeen expects a positive knee-jerk reaction across Indian assets.
India's credit spends, onshore bonds, and the rupee will continue to outperform the broader Asia and emerging market block, Lin Jing Leong, Singapore-based investment manager for Asian fixed income, said in an email to Bloomberg.
“The upgrade has been long-time coming given Prime Minister Modi’s government has proven time and time again that the government is adamant about reforming the country for the better, even at the risk of losing a crucial state election if need be,” Leong said.
Bank Of America
The move will bring a much needed relief to India’s rupee and bond market, Bank of America-Merrill Lynch’s treasurer Jayesh Mehta told BloombergQuint. The upgrade by Moody’s is an acknowledgment of India’s long-term growth prospects at a time when short term concerns have cropped up, Mehta said.
There were concerns about India breaching the fiscal deficit targets and India will now have to ensure that it doesn’t breach the deficit targets .Jayesh Mehta, Treasurer, Bank Of America, India
Government officials welcomed Moody’s decision and saw it as a vindication of its policies, many of which have led to short term disruptions.
Narendra Modi, Prime Minister
Amit Shah, BJP President
Piyush Goyal, Railway And Coal Minister
The Modi administration has favoured a strong economic policy over political expediencies, which has triggered the ratings upgrade by Moody's, Piyush Goyal told BloombergQuint.
He added that the government went about doing its job confident that endorsements will come along the way at regular intervals.
Hasmukh Adhia, Revenue Secretary
Shaktikanta Das, Former Economic Affairs Secretary
The ratings upgrade will serve as a message to investors across the world that India is in the right direction, and the short-term disruptions from structural reforms are being resolved, former economic affairs secretary Shaktikanta Das told BloombergQuint.
He added that during his time at the Finance Ministry he'd personally interacted with Moody's who weren't convinced that the government's reforms were deep rooted. "Perhaps now, Moody's is more than satisfied that reforms are here to stay and their impact will be long term," Das said.
Sanjeev Sanyal, Principal Economic Adviser
While the ratings upgrade has no substantial near-term implications, it will "certainly" bring down the cost of capital in the longer run, Sanjeev Sanyal told BloombergQuint.