Sensex, Nifty touch new highs as Moody's upgrade buoys sentiments (Second Lead)

The praise for India’s new GST and efforts to reduce the size of the informal economy gives PM Narendra Modi’s Bharatiya Janata Party a boost ahead of a crucial election in Gujarat next month and their re-election bid in 2019

The government may be rejoicing credit ratings agency Moody's upgrade on India's sovereign bond rating from Baa3 to Baa2 with a stable outlook, but critics feel that it is blowing the matter out of proportion.

Shah says from a flow point of you Moody's upgrades provides a a great opportunity for India because there are many pensions funds that don't invest in India because of lower rating. The Sensex rose 235.98 points to close at 33,342.80, even after paring initial gains.

European stocks were subdued in early trade as the euro strengthened against the dollar and investors digested comments by ECB President Mario Draghi at the Frankfurt European Banking Congress.

The government is mid-way through a wide-ranging programme of economic and institutional reforms, the global ratings agency said in a statement on Friday, mentioning GST, improvements to the monetary policy framework, and measures to address bad loans of banks.

"After a gap of 13 years, global rating agency Moody's on Friday upgraded India's sovereign credit rating from its lowest investment grade to Baa2 and gave a thumbs up to two big-ticket reforms - demonetisation and GST â€" calling them remarkable. Nifty climbed up 68.85 points or 67 bps to end the day at 10,283.60. Rupee surged as much as 1.1%.

"Moody's believes that those (reforms) 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".

Overall inflation rate in the country has declined markedly in recent times and forex reserves have increased to all-time highs, creating significant policy buffers to absorb potential shocks, Moody's said.

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The upgrade also comes just weeks after India improved its ranking by 30 places to 100th for the first time in the World Bank's ease of doing business report.

Anis Chakravarty, lead economist, Deloitte India, said Moody's rating upgrade "can be expected to bring buoyancy in equity and debt markets".

"Markets should worry that the government now having received the ratings upgrade, may actually slacken and relax its commitment to reducing fiscal deficit, as per the stated plan - especially, at a time when investors seem to be worrying about the same as reflected in the increase in bond yields of more than 50 bps since August 2017,"said Mr Chari".

The rating which has come after a gap of nearly 13-years is a sentiment booster and positive for flows into equities and debt market.

"Longer term, India's growth potential is significantly higher than most other Baa-rated sovereigns", the agency said.

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.

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