Moody’s changes India’s rating outlook to Stable from Negative, rating upgrade set to increase foreign fund flow
New Delhi, Oct 5 (FN Agency) Moody’s Investors Service on Monday upgraded India’s rating outlook to Stable from Negative aiding government’s efforts to make the country a preferred destination for foreign investors. The global financial research and rating firm affirmed the country’s foreign-currency and local-currency long-term issuer ratings and the local-currency senior unsecured rating at Baa3. It also affirmed India’s other short-term local currency rating at P-3. A rating upgrade means more foreign investors would be attracted to India and fund flow would further improve. “The decision to change the outlook to stable reflects Moody’s view that the downside risks from negative feedback between the real economy and financial system are receding,” the rating firm said.
It further said that with higher capital cushions and greater liquidity, banks and non-bank financial institutions pose much lesser risk to the sovereign than Moody’s previously anticipated. “And while risks stemming from a high debt burden and weak debt affordability remain, Moody’s expects that the economic environment will allow for a gradual reduction of the general government fiscal deficit over the next few years, preventing further deterioration of the sovereign credit profile,” it said. The affirmation of the Baa3 ratings balances India’s key credit strengths, which include a large and diversified economy with high growth potential, a relatively strong external position, and a stable domestic financing base for government debt, against its principal credit challenges, including low per capita incomes, high general government debt, low debt affordability and more limited government effectiveness, Moody’s said.
The rating agency’s assessment is set to help investors make their decisions in favour of India. Many global investors avoid putting their funds in countries which have negative rating despite their economy growing in double-digit. “The positive rating will certainly help India attract more investments into the country. Foreign capital inflows should increase significantly. We are already attracting a lot of foreign capital despite negative rating. Now, with this we will have much more funds coming to the country,” said NR Bhanumurthy, Vice-chancellor, Bengaluru Ambedkar School of Economics University.