28.11.12

Moody's on India


Ratings agency Moody’s said its outlook on India’s Baa3 rating was stable, bringing much-needed relief to the government which is fighting hard to avert a ratings downgrade.
Moody’s said its assumption was based on expectations that a high household savings rate and relatively competitive private sector would boost growth which, in turn, would improve the health of public finances and balance of payments metrics. The comments lifted the sentiment in the stock markets, with the sensex soaring 305 points, and comes at a time the UPA is trying to put the economy back on track and improve the mood in domestic businesses.
Another ratings agency, Standard & Poor’s, which had revised the outlook on India’s rating to negative from stable, had earlier said the country had a one-in-three chance of being downgraded in the next two years. Fitch also has a negative outlook on India’s rating.
Any ratings downgrade will make it difficult for Indian companies to raise funds overseas and hurt foreign investment flows. Also, the country’s attraction as an investment destination may take a knock at a time when growth has slowed and business confidence is down.
Moody’s said it expects GDP growth to be around 5.4% in FY 2013 and 6% or higher in FY 2014 as expansion gathers momentum. However, the agency cautioned that unanticipated domestic political turmoil, a further worsening in global growth and financial conditions, or a surge in food and other commodity prices could affect the pace and timing of the recovery.
In its annual credit analysis on India, Moody’s has said that the Baa3 sovereign rating is supported by credit strengths, which include a large, diverse economy, strong GDP growth as well as savings, and investment rates that exceed emerging market averages. “The rating is constrained by the credit challenges posed by India’s poor social and physical infrastructure, high government deficit and debt ratios, recurrent inflationary pressures and an uncertain operating environment,” it said. Moody’s made it clear that the report was an annual update to the markets and does not constitute a rating action. It noted that although India’s growth remains above that of its rating peers, it has slowed from 8.4% in FY 2010 and FY 2011 to 5.3% in the first half of 2012.

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