MOSL: ECOSCOPE-Moody’s upgrades India to highest sovereign rating post liberalization-Further upgrades from Moody’s unlikely

​ECOSCOPE: Moody’s upgrades India to highest sovereign rating post liberalization; Further upgrades from Moody’s unlikely, but other agencies could follow suit

Moody's upgraded India's sovereign credit rating to Baa2 from Baa3, the highest rating that the country has received from the global ratings agency post liberalization. Outlook on the rating is also changed to stable from positive. Notably, Moody's has upgraded India's rating after nearly 14 years (last in January 2004).

The ratings agency attributed the upgrade to a host of economic and institutional reforms (such as GST, better monetary policy framework, bank recapitalization, demonetization and DBT), which are expected to drive a gradual improvement in India's fiscal metrics. India's real GDP growth is also expected to improve from 6.7% in FY18 to 7.5% in FY19, and then remain high in the ensuing years.

Although the upgrade has no impact on the country's fundamentals, it is a sentiment booster and largely reflects the governments' past and ongoing actions.

Moody's clarified that further upgrades will depend on a material improvement in fiscal metrics, along with a strong and durable recovery of the investment cycle. On the contrary, a material deterioration in fiscal metrics/health of the banking system could prompt a downgrade. Overall, we do not expect any further rating change from Moody's in the near future; however, an upgrade from other rating agencies (Standard & Poor's and Fitch) is long due, in our view.