Overseas borrowing costs set to fall for cos as Moody's upgrades India outlook - Times of India

The author has posted comments on this article Mayur Shetty, TNN | Apr 9, 2015, 11.23AM IST

MUMBAI: International borrowing costs for Indian companies are set to get cheaper with rating agency Moody's revising India's rating outlook to positive from stable. A positive outlook is an indicator that chances of an upgrade are high.

Bankers say that the revision in outlook is quite timely and will benefit those corporates seeking to raise funds through rupee denominated bonds. "Foreign investors might be more willing to take a rupee exposure if there is the possibility of a sovereign upgrade," said a dealer with a foreign bank.

In a statement issued here on Thursday, rating agency Moody's said that it has affirmed the Government of India's Baa3 issuer and senior unsecured ratings and changed the rating outlook to positive from stable. Moody's has also affirmed India's P-3 short-term local currency issuer rating.

The rating agency said that the outlook has been upgraded on expectations that the government is establishing a framework that will allow India to outperform peers over the medium term and it is also taking measures to improve India's macro-economic, infrastructure and institutional profile.

"India has grown faster than similarly rated peers over the last decade due to favorable demographics, economic diversity, as well as high savings and investment rates. Moody's expects these structural advantages, supported by relatively benign global commodity prices and liquidity conditions, will keep India's growth higher than that of its peers over the rating horizon," the statement said.

The internal constraints to the Indian economy are recurrent inflationary pressures, occasional balance of payments pressures, and an uncertain regulatory environment . "Moody's believes that recent measures to address inflation, keep external balances in check, simplify the regulatory regime for investors, increase foreign direct investment, and facilitate infrastructure development will reduce some of India's sovereign credit constraints," the statement added,

Hinting that a review for an upgrade may come a year later, Moody's said "Many of these measures are at relatively early stages of design and have yet to be implemented. According to Moody's, the ability of policymakers to strengthen India's sovereign credit profile to a level consistent with a higher rating will become apparent over the next 12-18 months".

Commenting on the banking sector, Moody's said India's banking system's asset quality, loan loss coverage and capital ratios are relatively weak. "This poses sovereign credit risks because of the banking sector's role in financing growth as well the government's deficits through its purchase of government securities, and the contingent liabilities due to the government's ownership of a major portion of the banking sector. In the absence of any improvement in banking-system metrics over the coming months, India's sovereign credit profile will remain constrained," the statement said.