Rating upgrade to bring borrowing cost down for govt and companies, raise forex inflows
As expected, the bond yields eased following the news. The 10-year benchmark bond yield eased to 6.4052% at close from 6.4742% at open.
The rupee, which has been under pressure for long, gained after the upgrade, recouping from a low earlier in the day. The currency closed 11 paise higher at 87.55 against the greenback after opening at 87.67. The rupee has lost 2.4% so far this financial year.
However, the stock market ignored the development with a see-saw trade and ended the day marginally higher with the Sensex adding 0.07% and the Nifty adding 0.05%.
According to Soumyakanti Ghosh, the chief economic advisor at State Bank of India, the rating agencies did not capture the country's fundamentals for almost a decade. The current rating action by S&P reaffirms the position that India's rating ought to have been on the higher side.
Ghosh said the current rating upgrade 'hinges on three fundamental observations — credible fiscal consolidation, strong external position and well anchored inflationary expectations, also an acknowledgement that quality of government spending has improved in the past five to six years."
According to Radhika Rao, the senior economist at the Singaporean lender DBS Bank, the S&P upgrade brings the country on par with Indonesia and Mexico.
'The positive impetus on the back of this upgrade will help lower the credit premium on the sovereign's debt as well as further ease corporates' offshore borrowing costs,' Rao said.
"The upgrade is driven by improvement in the economy's macro backdrop, including material progress towards fiscal consolidation goals. With this year's budget focused on aligning deficits with overall debt levels, we expect cumulative deficit and debt levels to come down in the coming years, aided by healthy growth momentum as well as consolidation," she said further.
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