Moody’s upgrades India rating outlook to positive

Friday, 10 April 2015 00:00 - - {{hitsCtrl.values.hits}}

Labourers work at the construction site of a residential building in Mumbai's central financial district – REUTERS Reuters: Moody’s ratings revised India’s sovereign rating outlook to “positive” from “stable” on Thursday as it expects the actions by policymakers will enhance the country’s economic strength in the medium term. Moody’s also said that it expected structural advantages, supported by relatively benign commodity prices and liquidity conditions globally, will keep India’s growth above its peers over the rating horizon. The outlook revision was announced before Indian markets opened on Thursday. Analysts said they expected bank stocks to rise and the rupee to strengthen on the upgrade. The investor-friendly Narendra Modi government, which came to power last May promising faster growth, more jobs and quick clearances, has taken measures to fast-track clearances for investment projects, boost infrastructure investment and remove policy uncertainty in mining and coal sectors. The government has also relaxed foreign investments in sectors such as defence, insurance, e-commerce, railways and eased steps to allow businesses to acquire land and set up factories. “India’s policymakers are establishing a framework that will likely allow India’s growth to continue to outperform that of its peers over medium term and improve India’s macro-economic, infrastructure and institutional profile,” Moody’s said in its statement. However, Moody’s stopped short of raising the sovereign credit rating due to relative weakness in fiscal, inflation, infrastructure and poor asset quality among Indian banks. Constrained credit profile “Recurrent inflationary pressures, occasional balance of payments pressures, and an uncertain regulatory environment have contributed to periods of volatility in growth, and have exposed India to external and financial shocks, constraining its credit profile,” Moody’s said. Moody’s has a Baa3 rating on India. After a recent revision in the methodology of measuring gross domestic product, which raised a lot of scepticism from policymakers including government and central bank officials, India registered growth of 7.5% in the December quarter, higher than China’s. Under this new method, the Reserve Bank of India expects India to growth at 7.8% for 2015/16, lower than the government’s estimate of 8.0-8.5%. The government has been pitching to rating agencies to improve India’s credit rating, citing reforms, and on Thursday officials were to quick to welcome Moody’s improved outlook. “Upgrade of outlook proves government is moving in the right direction ... it validates India’s commitment on fiscal discipline,” India’s chief economic adviser Arvind Subramanian said on news channel CNBC TV18.

India eases rules for foreign investment in government bonds

Reuters: India’s market regulator has allowed foreign investors to reinvest in government bonds the same day, according to an emailed circular seen by Reuters, hoping to sustain outside interest in the country’s debt market. India limits the amount of government bonds available to foreign investors, and some 90% of that allocation was filled in September last year, following the election of Prime Minister Narendra Modi’s government earlier in 2014. Levels of foreign investment have since risen, with the Securities and Exchange Board of India (SEBI) auctioning the remaining portion at frequent intervals. However, foreign investors who bought government bonds before September had been unable to switch those bonds to different tenors - once debt was sold, they could not buy back in without going through the lengthy auction process. “This will revive foreign investor interest in government bonds and help investors to switch to longer end bonds from shorter end, given a benign interest rate outlook in India,” said Ajay Manglunia, head of fixed income markets at Edelweiss Securities. Allowing foreign investors to reinvest in sovereign paper could also indicate that the government has no intention of relaxing overall limits on their investment anytime soon, Manglunia added. SEBI, in an email sent late on Wednesday to the custodian banks of foreign investors and seen by Reuters, said the facility to buy and sell government bonds the same day would be applicable on the entire $ 30 billion ceiling on government debt purchases by foreign investors. “Upon sale or redemption or maturity of government securities the FPIs (foreign portfolio investors) shall be permitted to buy government securities on the same day,” SEBI said in the email, confirmed by four dealers. Foreign investors have been aggressively buying Indian debt since Modi came to power in May, promising a quicker and stronger economic recovery. The benchmark 10-year bond yield has fallen by 104 basis points since May last year driven by foreign buying. Foreign investors have poured in $ 7.9 billion so far this year into Indian debt, on top of $ 26.2 billion in 2014.