After Moody’s upgrade, government keeps fingers crossed for rating up by S&P

24 Nov 2017


After Moody's raised its rating for India last week, the government is hoping Standard & Poor's will do the same when it comes out with its latest ratings today. Its current rating for India is 'BBB-' with a stable outlook.

"S&P is coming out with its review; we are bracing for both a positive and a negative outcome of their assessment,'' a senior finance ministry official told The Indian Express.

Moody's Investors Service raised the country's sovereign rating this montyh for the first time in over 13 years, saying that growth prospects have improved with continued economic and institutional reforms (See: Moody's upgrades India's sovereign rating to Baa2 from Baa3).

The US-based Moody's upped India's rating to Baa2 from Baa3, changing the outlook to 'stable' from 'positive', saying that reforms will help stabilise rising levels of debt.

S&P had last changed India's rating in January 2007 to BBB-, which is the lowest investment grade rating for bonds. The outlook assigned then was stable. It changed the outlook to negative in 2009 and again raised it to stable in 2010. In 2012, the outlook was again lowered to negative, which was raised to stable soon after the Modi government took over in 2014. The rating, however, remained unchanged at BBB-.

According to Reuters, the expectation of an upgrade from S&P had buoyed sentiment for the rupee and government bonds on Thursday.

The rupee ended at 64.58 to the dollar after moving in a range of 64.5675-64.8900 during the day, and compared with Wednesday's close of 64.92.

The 10-year benchmark bond yield also cooled off from its highs and ended at 6.99 per cent after rising to 7.02 per cent. It had closed at 6.96 per cent on Wednesday.

In an email reply to Reuters, S&P said, "We never comment on speculation about our ratings." The rating agency had in November 2016 ruled out an upgrade for two years - 2017 and 2018 - despite policy stability and reforms (See: S&P to keep India's rating at a low BBB- for next 2 years, govt not bothered). 

"The stable outlook balances India's sound external position and inclusive policy making tradition against the vulnerabilities stemming from its low per capita income and weak public finances," S&P had said.

The outlook, it said, "indicates that we do not expect to change our rating on India this year or next, based on our current set of forecasts".

It had triggered a strong reaction from the government which asked the US-based agency to introspect as there was a disconnect between its thinking and investors' perception.

However, the rating agency had maintained it wanted to see more efforts to lower government debt to below 60 percent of GDP and that it did not expect revenues to rise enough to meaningfully lower the deficit over the medium term.

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