A sovereign ratings upgrade of the Indian government's bonds and of some domestic industry majors from U.S. credit rating agency Moody's on Friday lifted the key Indian equity indices to their new intra-day record highs.
Meanwhile the Sensex closed 236 points higher after the Moody's upgrade, while the NSE index rose almost 70 points.
The agency said it was lifting India's rating to Baa2 from Baa3 and changed its rating outlook to stable from positive, as risks to India's credit profile were broadly balanced.
The BSE Sensex, which opened at 33,388.47 points, traded at 33,391.25Apoints (at 2.45 p.m.) higher 284.43 points or 0.86 per cent from the previous day's close at 33,106.82 points.
Moody's Investors Service on Friday upped the long-term ratings of four Indian financial institutions including SBI and HDFC Bank by a notch to Baa2 following the upgrade of the country's sovereign rating to the same level. The 10-year bond yield, which fell 12 basis points on Friday, ended just 1 basis point lower.
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Sinha advised the government to avoid focussing too much on ratings on World Bank (ease of doing business) and Moody's and rather focus on dealing with the issue of non-performing assets in the banking sector, jobless growth and lack of demand in the Indian economy.
"The rating upgrades for IOC, BPCL and HPCL follow the upgrade of the sovereign rating and reflect the strategic importance of the oil marketing companies as they own and operate the majority of the country's fuel refining entities and most of the fuel distribution infrastructure", Moody's said.
Even if recent economic reforms have seen near-term negative growth impacts, there have been some benefits.
"While a number of important reforms remain at the design phase, Moody's believes that those implemented to date will advance the government's objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and ultimately fostering strong and sustainable growth", it noted. The second quarter's numbers would be out by the end of this month. The upgrade has placed India's rating at par with those of Italy and the Philippines.
Long term, India's growth potential is significantly higher than most other Baa-rated sovereigns, it added. "The reform program will thus complement the existing shock-absorbance capacity provided by India's strong growth potential and improving global competitiveness", the rating agency said in a statement. Earlier, the outlook was positive but on a lower rating, which indicated there were more chances of an upgrade than downgrade.