Rupee surges 1% against US dollar, bond prices rise after Moody’s upgrade


Mumbai: Indian markets, rupee and 10-year bond prices surged on Friday after credit rating agency Moody’s Investors Services upgraded the nation’s sovereign ratings to Baa2 from its lowest investment grade and changed the outlook on the rating to stable from positive.

The home currency opened at 64.75 and touched a high of 64.63 or strengthened as much as 1.08%, its biggest gain since 14 March. At 9.17am, the rupee was trading at 64.70 a dollar, up 1% from its previous close of 65.32.

The 10-year bond yield slid 13 basis points, its steepest fall since 16 May, and was trading at 6.935% compared to its previous close of 7.062%. Bond yields and prices move in opposite directions.

The benchmark Sensex index rose 1.16%, or 385.44 points, to 33,492.26 points. So far this year, it has gained 26%. The 50-share Nifty index rose 1.18% to 10334.90 points.

The Nifty Bank jumped 1.7% to 25,875.70 points. Banking stocks were major gainers in the rally. ICICI Bank Ltd gained 3%, State Bank of India 2.7%, HDFC Bank was up 1.4%, Punjab National Bank 4%, Bank of India 3.3%.

“Welcomed great news after 13 years. Upgrade will see foreign funds back in action. Modi government efforts are paying up,” said Kamlesh Shroff, founder of Omniscient Securities.

So far this year, the rupee has gained 5.1%, while foreign institutional investors have bought $7.97 billion and $22.34 billion in equity and debt, respectively.

“The decision to upgrade the ratings is underpinned by Moody’s expectation that continued progress on economic and institutional reforms will, over time, enhance India’s high growth potential and its large and stable financing base for government debt, and will likely contribute to a gradual decline in the general government debt burden over the medium term,” Moody’s said in a note.

The upgrade came at a time when Indian market is facing pain due to a surge in international crude oil prices—which may cause fiscal slippage—and accelerating inflation.

“Ratings upgrade by Moody’s is an acknowledgment of India’s long-term growth prospects. This news will bring much needed relief to Indian bonds and the rupee,” Bloomberg reported, quoting Jayesh Mehta, Bank of America’s India country treasurer.