Moody’s rating upgrade positive for India’s financial ecosystem: Analysts

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Moody’s sovereign rating upgrade for India to ‘Baa2’ with a stable outlook took benchmark indices, the S&P BSE Sensex and the Nifty 50, over 1% higher in intra-day deals to 33,520 and 10,339 levels respectively.
Analysts see the move as a big positive for the Indian financial ecosystem and India Inc. The banking sector, they say, will be one of the key beneficiaries as it remains a proxy to the country’s economic growth. That apart, the recent recapitalisation plan for public sector banks will also be viewed more constructively.

“Ratings upgrade is a clear positive. This is the first upgrade since 2004. That said, one needs to see if the other rating agencies like S&P follow suit. The move is also a positive for banking stocks, as their rating, in some way, is liked to India’s base rating. The recent move to recapitalise public sector banks (PSBs) are now likely to be seen more positively. From an investment perspective, though one can book profit from a near-term perspective in PSU banks, they still remain a good long-term bet,” said Tirthankar Patnaik, India Strategist at Mizuho Bank.
Banking shares were among the top gainers with the Nifty Bank index surging 2% on the National Stock Exchange (NSE) in intra-day trade. The index surpassed its previous high of 25,696 touched on November 7, 2017, in intra-day deals.

On the other hand, the Nifty PSU Bank, the largest gainer among sectoral indices, was up 4% at 4,191. Among individual stocks, State Bank of India (SBI), Punjab National Bank, Bank of Baroda, ICICI Bank, Canara Bank, Axis Bank, Allahabad Bank, IDBI Bank, Bank of India and Syndicate Bank were up 2% to 4% on the NSE.

Analysts at Nomura, too, believe that this upgrade confirms the positive direction of government reforms (GST, bankruptcy reforms, infrastructure spending and the large-bank recapitalisation etc) and their expected benefits over the medium-term.  They believe the timing is a positive surprise to the markets, and should be seen as incrementally positive news for bond markets that have recently suffered due to uncertainty on the fiscal front, associated with reforms such as the GST.

“The question now is whether or not S&P and Fitch follow. Our bias is that they will likely wait for the government’s fiscal position to actually improve before making any changes (on outlook, followed by rating), but directionally we believe India is headed the right way,” says Sonal Varma, managing director and chief India economist at Nomura.
Following upgrading of India’s sovereign rating to “Baa2”, Moody’s also upgraded issuer rating for five government owned companies in oil and gas sector – ONGC, India Oil Corporation (IOC), Bharat Petroleum Corp Ltd (BPCL), Hindustan Petroleum Corp Ltd (HPCL) and Petronet LNG Lt (PLL) – to Baa2 from Baa3.

Experts also see this move as a positive for oil marketing companies (OMCs) as the borrowings from global lenders / peers becomes cheaper.
“Any company that has a significant amount of foreign leverage on its books will see their borrowing costs reduce given the rating upgrade. Oil PSUs will one of the key beneficiaries of this. That apart, ratings upgrade also augurs well for foreign direct investment (FDI) as this allows more funds to enter India. Countries where India’s performance has not yet been recognised will now sit up a take notice,” Patnaik of Mizuho Bank says.