More dollars at lower cost

Mumbai: Financial market participants have welcomed global ratings agency Moody’s decision to upgrade India’s rating to stable saying that the move would help Indian corporates as well as financial institutions to access capital in the overseas market at a lower cost.

This, according to the experts, would also help increase the attractiveness of Indian bond market.

“This is a huge positive for the Indian government and Indian corporates as it reduces borrowing costs for the government and will lead to lower credit risk premiums for corporates leading to cheaper cost of capital. The move also will help in improving availability and access to capital overseas for Indian companies. New long-term investors such as pension funds will now start to invest in Indian bonds and existing long-term investors could increase the allocation to Indian bonds. Thus, this measure will boost confidence, leading to higher capital flows and allocations,” said Chanda Kochhar, MD & CEO, ICICI Bank.  

Soumya Kanti Ghosh, group chief economic adviser at State Bank of India (SBI) pointed out that the rating upgrade would have a profound impact on bond yields and lift the morose sentiments in bond market, apart from impacting the movements in domestic currency.

He added that despite India’s improved fundamentals, the bond yields have moved in a contrarian direction, even

higher than countries like South Africa and Russia that have incidentally witnessed deterioration in economic fundamentals.

While Moody’s decision positively surprised the market participants, some analysts feel that the other two global rating agencies such as Fitch and S&P are unlikely to upgrade India’s outlook in a hurry given its stretched fiscal situation which could further worsen due to a rise in fuel prices.

“This rating upgrade comes at a time when implementation of reforms, a subdued rural sector and weak investment growth has slowed economic growth. At the same time, a reversal in low oil prices has raised risks to the economy’s fiscal, inflation and current account dynamics. We don’t think the other two global rating agencies — Fitch and S&P — will follow-up in a hurry,” said DBS Bank.