Moody's raises India's sovereign bond rating
Moody's Investors Service upgraded its ratings on India's sovereign bonds for the first time in nearly 14 years on Friday, saying continued progress on economic and institutional reform will boost the country's growth potential.
The agency said it was lifting India's rating to Baa2 from Baa3 and changed its rating outlook to stable from positive as risks to India's credit profile were broadly balanced. Moody's upgrade, its first since January 2004, moves India's rating to the second lowest level of investment grade.
The upgrade is a shot in the arm for Prime Minister Narendra Modi's government and the reforms it has pushed through, and it comes just weeks after the World Bank moved India up 30 places in its annual ease of doing business rankings. All Indian markets including stocks, bonds and rupee rallied on the ratings upgrade.
"It seems like Santa Claus has already opened his bag of goodies," said Lakshmi Iyer, head of fixed income at Kotak Mutual Fund said. "The move is overall positive for bonds which were caught in a negative spiral. This is a structural positive which would lead to easing in yields across tenors," she said. Last year, India lobbied hard with Moody's for an upgrade, but failed. The agency raised doubts about the country's debt levels and fragile banks, and declined to budge despite the government's criticism of their rating methodology.
The government cheered the upgrade on Friday with Economic Affairs Secretary S. Garg telling reporters the rating upgrade was a recognition of economic reforms undertaken over three years. At 0425 GMT, the benchmark 10-year bond yield was down 10 basis points at 6.96 percent, the rupee was trading stronger at 64.76 per dollar versus the previous close of 65.3250, while the NSE share index was 1.2 percent higher. "We have been expecting it for a long time and this was long overdue and is very positive for the market. Looks like sentiments are going to become positive," said Sunil Sharma, chief investment officer with Sanctum Wealth Management.
However, debt traders said the rally was unlikely to last beyond a few days as the coming heavy bond supply and hawkish inflation outlook were unlikely to change soon.