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 While there must be signs of sustainable growth from moves such as
getting stalled infrastructure projects under way, the chance of a
rating upgrade in the next 12-18 months has increased, Moody's
sovereign rating analyst Atsi Sheth told Reuters.
"We're saying that over the next 12-18 months, if things continue to
improve, the rating level might also go up," she said. "It is likely
that there's a greater chance of rating going up than staying the
same or going down."
Major credit rating agencies all have the lowest investment grade
rating on India. Standard & Poor's and Fitch both rate the country's
outlook as "stable".
Fitch later issued a statement affirming its 'BBB-', "stable"
outlook on India.
"India's relatively weak business environment and standards of
governance, as well as widespread infrastructure bottlenecks, will
not change overnight, but there is ample room for improvement," the
ratings agency said in a release.
Structural advantages, relatively benign commodity prices and
liquidity conditions globally will keep India's growth above its
peers, Moody's said. (http://bit.ly/1GqJyzY)
Moody's move came before markets opened. Indian stocks rose in early
trade while bonds and the rupee <INR=> were little changed.
"This is only a ratings outlook upgrade and not an actual upgrade.
Markets will react positively when the actual event happens," said
Harish Agarwal, a fixed income trader at First Rand Bank in Mumbai.
The Narendra Modi government, which came to power last May promising
faster growth and more jobs, has fast-tracked some projects, removed
policy uncertainty in mining and coal and let businesses acquire
land for factories.
It has also relaxed rules on foreign investments in sectors such as
insurance, e-commerce and railways.
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CONSTRAINED CREDIT PROFILE
Key risks to India's credit profile are shocks from agriculture,
global risk aversion, complacency on reforms, a weak banking system
and high corporate leverage without a commensurate increase in
profitability, Sheth said.
"If you don't have the policy effort, then your growth will come to
a halt because either inflation will interfere, or the current
account will interfere or the banking system metrics or some such
will interfere," she added.
After a recent revision in measuring gross domestic product, which
generated scepticism, India registered growth of 7.5 percent in
October-December, higher than China's pace.
Based on the new method, the Reserve Bank of India expects India to
grow 7.8 percent in 2015/16, below the government's 8.0-8.5 percent
estimate.
Officials welcomed Moody's brighter outlook.
"The upgrade in outlook is significant but we've to do more,"
Finance Minister Arun Jaitley tweeted.
(Additional reporting by Rajesh Kumar Singh in New Delhi, and
Abhishek Vishnoi and Swati Bhat in Mumbai; Editing by Richard
Borsuk)
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