Credit rating agency Moody's has upgraded India's sovereign ratings to Baa2 from its lowest investment grade (Baa3) for the first time since 2004 even as it had downgraded China's credit ratings for the first time in almost 30 years recently.
Rating agency Moody's Investor Services said that it is lifting India's government bond rating to Baa2 from Baa3.
Sovereign rating is a barometer of the country's investment climate. Baa2 is the ninth highest rating in Moody's long-term corporate obligation rating, which is subject to moderate credit risk.
This is the first time since 2004 that India's government bond ratings have been upgraded.
Vijaya Bank, PNB, Bank of Baroda, IDBI Bank, Just Dial, Edelweiss Financial, Petronet LNG, Suzlon Energy, Religare Enterprises, L&T Finance, Indiabulls Real, DLF, Nitesh Estates and Puravankara rallied 2-10% while TCS, Tech Mahindra, HCL Technologies and Wipro were trading in red. It also noted that the reforms implemented reduced the risk of a sharp increase in debt, even in potential downside scenarios. The government of Prime Minister Narendra Modi eased tax requirements last month for small- and medium-sized companies in response to growing criticism of its economic stewardship.
The reforms programme will thus complement the existing "shock-absorbance capacity" provided by India's strong growth potential and improving global competitiveness, it added.
Moody's cited the goods and services tax, which it said will promote productivity by removing barriers to interstate trade, improvements to the monetary policy framework, measures to clean up non-performing loans, and efforts to bring more areas into the formal economy.
Other important measures which have yet to reach fruition include planned land and labour market reforms, which rely to a great extent on cooperation with and between the states, it said. Moody's forecast GDP growth of 6.7 percent for the fiscal year ended March 2018, with a pick up to 7.5 percent in the following year and "similarly robust" levels from 2019 onward.
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