India has higher growth potential: Moody's

Former prime minister Manmohan Singh cautioned that the soaring prices of the crude oil could ‘hurt the fiscal system’ of the country

Senior Bharatiya Janata Party leader Yashwant Sinha on Friday took a dig at the Narendra Modi government said that there should be a midnight ceremony in Parliament to celebrate Moody's upgrade of India's rating. The Sensex rose 235.98 points to close at 33,342.80, even after paring initial gains.

Moody's raised the rating from the lowest investment grade of Baa3 to Baa2, and changed the outlook from positive to stable. In its biggest single-day surge in six weeks, the rupee gained 31 paise to end at a one-week high of 65.01 against the dollar.

Moody's decision to upgrade the India's sovereign ratings is based on its expectations that economic and institutional reforms pursued by the government will, over time, enhance India's high growth potential and will stabilise government debt.

However, the rating agency has warned that if fiscal metrics and the outlook for general government fiscal consolidation deteriorates materially, then the ratings can be improved.

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.

Moody's improved rating for India means that investors can now have more confidence and more clarity regarding India's future, and they will be more open to investing there. This upgrade puts Moody's one notch ahead of Fitch and S&P, which now has India on BBB- (stable), noted ANZ in a research report.

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India's economic growth had slipped to an over three-year low of 5.7 per cent in the first quarter.

Moody's forecast India's economic growth at 6.7 percent for the fiscal year ending March 2018 and expects it to climb to 7.5 percent in the next financial year.

Stocks of firms like HPCL, IOC, ONGC, GAIL and NTPC rallied as these firms were amongst those which got an issuers and ratings upgrade.

Long term, India's growth potential is significantly higher than most other Baa-rated sovereigns, it added.

The agency had last upgraded India in 2004. HDFC Chairman Deepak Parekh said, "I've always felt India's rating was far below than what it should be".

"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", the agency said. The general outlook on the rating is "stable".

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