Stable outlook for the next 24 months reflects the agency’s view that the new Government has both the willingness and capacity to implement reforms necessary to restore some of India’s lost growth potential, consolidate its fiscal accounts, and permit the RBI to carry out effective monetary policy
Just a day after Prime Minister Narendra Modi launched the ‘Make In India’ campaign to attract greater investment in the country by improving the business environment, and right on the cusp of his visit to the US, rating agency Standard & Poor’s (S&P) on Friday raised India’s credit rating outlook to stable on the back of strong political mandate helping fiscal and economic reforms.
The agency has revised India’s sovereign credit rating outlook after a gap of two years, from negative to stable indicating the possibility of a rating upgrade. In addition to this, S&P also revised the rating outlook to stable from negative of six Indian corporates, including ONGC and Mukesh Ambani-led Reliance Industries.
“Our outlook revision indicates that we believe the current Government’s strong mandate will enable it to implement many of its administrative, fiscal, and economic reforms,” S&P said in a statement.
The revision in outlook came on the day Modi left for his high profile visit to the US, where he is scheduled to meet top US corporates. The outlook revision gave a boost to the stock markets with the BSE Sensex shooting up by 158 points to 26,626.32.
Also after taking over as Prime Minister in May, Modi has launched a host of initiatives, including ‘Make in India’ campaign to improve business environment and fetch more FDI.
The present Government, S&P said, “will remedy, to varying degrees, the growth impediments - policy paralysis, energy supply bottlenecks, and administrative obstacles. The Government’s actions will likely add momentum to the incipient cyclical upswing evident in the economy.”
Commenting on the action, Finance Secretary Arvind Mayaram said the Indian economy can grow by more than 5.5 per cent in the current fiscal year.
“We are satisfied that the credit rating agency has acknowledged the steps that Government has taken to improve the economy and specially bring the investment climate back and therefore the growth cycle back,” he added.
S&P said it could raise the rating if the economy reverts to a GDP trend growth of 5.5 per cent and there are improvements in fiscal, external or inflation metrics.The agency currently has a ‘BBB-/A-3’ rating on India.SBI Chairperson Arundhati Bhattacharya said S&P’s action is a reflection of India’s sound external position, supported by robust capital inflows and a benign CAD.
S&P said the stable outlook for the next 24 months reflects the agency’s view that the new government has both the willingness and capacity to implement reforms necessary to restore some of India’s lost growth potential, consolidate its fiscal accounts, and permit
the RBI to carry out effective monetary policy.
S&P, however, cautioned that it could lower the rating in case the government’s structural reform agenda stalls such that economic growth does not accelerate, or fiscal and debt ratios fail to improve.
Meanwhile it also revised the rating outlook to stable from negative of six Indian corporates, including ONGC and Mukesh Ambani led Reliance Industries.The improvement in outlook of RIl, TCS, ONGC, NTPC, NHPC and PGCIl follows S&P’s revision in the sovereign credit outlook for India, S&P’s said in a statement.
S&P said it revised the outlook on Reliance to reflect the reduced likelihood that it may lower the transfer and convertibility assessment following the sovereign action.
The outlook revision of ONGC, PowerGrid, NTPC, and NHPC reflects the sensitivity of these entities to the sovereign credit rating on India, given their very strong relationship to the Government.“We expect the government to maintain its majority ownership, and influence the business and financial strategy of the companies,” it said.
The outlook on the foreign currency rating on TCS has been revised following similar action on the sovereign, S&P’s added.Further, S&P’s also revised the outlooks on four Indian Government-related entities - EXIM Bank, India Infrastructure Finance Company, Indian Railways Finance Corp, Power Finance Corp - to stable from negative.
Even India Inc said ratings agency Standard & Poor’s move will boost investor confidence and enhance access of Indian firms to international funds.
“It will improve investor confidence and companies’ access to international funds. The outlook revision was based on the strong mandate received by the new Government, which has enabled it to implement policies that will revive growth and boost investments,” said CII director general Chandrajit Banerjee.
“What global rating agency Standard & Poor’s (S&P) has recognised today has already been acknowledged by global investors who have been pouring money into the Indian debt and stock markets for the last several months,” Assocham president Rana Kapoor said.
“In fact, our markets have been the best performing. In a way, the rating agencies seem to be behind the curve when it comes to reposing faith in the Indian economy,” he added.
The revision in outlook comes ahead of Prime Minister Narendra Modi’s high profile visit to the US, which among other things, is aimed at procuring investments. Modi is scheduled to meet top US corporates. The stable outlook, it said, reflects the agency’s expectation that the newly-elected government will be able to implement reforms that spur growth, which in turn improves fiscal performance.