VIEW S&P Global upgrades India's sovereign credit ratings to "BBB"
COMMENTARY:
This will boost debt inflows and ease worries over the long-duration bond rally faltering due to dwindling demand from banks. The development could bring in long-term tactical and strategic inflows and support sentiment in debt markets. For equities, it is a minor sentimental positive and a reassurance of strength in domestic economy.
S&P's upgrade of India's rating from BBB- to BBB is certainly a welcome development — but it is also, by any reasonable measure, too little and too late. What market participants and India-watchers have long recognised is only now being acknowledged by the rating agencies. The reality is that India's economic and financial dynamism has far outpaced its perceived credit risk.
The positive trajectory of Indian equities and other asset classes is likely to continue, propelled by the same structural strengths that have underpinned their outperformance for years — irrespective of the verdicts handed down by credit rating agencies.
India has maintained strong fiscal discipline in recent years, keeping the current account deficit within a manageable range. This, along with robust domestic macros and a growth-supportive monetary stance from the RBI, has underpinned S&P's upgrade from BBB– to BBB positive. Near-term tariffs may impact select companies, but they pose little threat to long-term GDP growth.
The government's consistent and strong commitment to fiscal consolidation along with a focus on debt sustainability and superior macro stability has been the key factor driving India's rating upgrade. The government in last few years has perhaps shown the most aggressive fiscal consolidation among global peers along with efforts to enhance supply side of economy that has yielded benefit in terms of low and stable inflation. All this feeds into India's rating upgrade.
The upgrade is a reflection of the efforts to ensure macroeconomic stability and the resilience of the balance sheet of all economic agents.
The upgrade will impact asset classes across the board and will help draw quality flows to the market.
The move by S&P to upgrade India reflects improvement in fiscal metrics led by the centre sticking to its fiscal consolidation path post the COVID19 shock.
Other metrics such as external debt to GDP, current account deficit, growth and inflation was on a strong footing compared to other BBB rated countries
TERESA JOHN, LEAD ECONOMIST, NIRMAL BANK INSTITUTIONAL EQUITIES, MUMBAI
The rating upgrade reflects India's stable macroeconomic fundamentals and will be positive for bond yields, which have seen some uptick of late.
We continue to expect 25-50bps of rate cuts on the back of inflation likely undershooting RBI's forecasts and a cyclical growth slowdown amid trade tensions. Stable macrofundamentals also provide room for some countercyclical policy easing.
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