For the first time in 15 years, all 3 global ratings agencies — S&P, Moody’s and Fitch — have placed India in the ‘investment grade’. The decision marks a dramatic reversal of the situation India faced in 1991 when it was downgraded by S&P to below investment grade after the Balance of Payment crisis.
Though Moody and Fitch has already upgraded some time before many players were waiting for S &P to upgrade Indian debt instruments
Standard & Poor’s is a leading provider of financial market intelligence. The world’s foremost source of credit ratings, indices, investment research, risk evaluation and data, Standard & Poor’s provides financial decision-makers with the intelligence they need to feel confident about their decisions. Many investors know Standard & Poor’s for its respected role as an independent provider of credit ratings and as the home of the S&P 500 benchmark index.
| Date | Description |
| 30 JAN 2007 | BBB-/stable/A-3 |
| 19-APR- 2006 | BB+/positive/B |
| 2-FEB-2005 | BB+/Stable/B |
| 23-AUG-2004 | BB/Positive/B |
| 16-DEC-2003 | BB/Stable/B |
| 07-AUG-2001 | BB/Negative/B |
The upgrade “reflects the country’s strong economic prospects and external balance-sheet and its deep capital market, which supports a weak, but improving fiscal position,” said an S&P release. The sovereign rating now stands at BBB-/A-3 from BB+/B. The ‘stable’ outlook signifies that there is no threat to the present rating, but substantial improvements are required for a further upgrade.
It is a rebuff to skeptics who are yet to buy the India story.. The move will make it easier for Corporate India to raise cheaper loans in overseas money markets, pave the way for international funds who avoid investing in speculative grade and automatically lift the credit ratings of several Indian banks and financial institutions.
It is an acknowledgement of India’s improving macro-economic stability and strength. The concern over fiscal consolidation has waned. The growth rate is sustainable and though debt levels are high, revenue collections are good... Since India has had a volatile rating history, S&P possibly wanted to wait and make sure there is enough conviction behind the move.
Institutions, which now stand upgraded to investment grade, are SBI, ICICI Bank, IDBI, Bank of India, IOB and UTI Bank, Exim Bank, Power Finance Corp, and IRFC. All these institutions will be able to have wider choice of investors and consequently, cheaper foreign loans
What Grading means to India
- Sentimental booster for the investors and borrowers of India
The announcement crystallizes the expectations built in by FIIs. It also opens the doors for a number of international funds, which by their charter are not allowed to participate in speculative grade investments. More foreign inflows of the market would drive the stock prices further up after more investments are expected to inflow into stock market.- Centre Government can tap overseas investors now. If it does for borrowing requirements, it will get better returns than what it has ever received.
- Indian conservative funds like pension fund and provident fund – who has not invested in India’s debt instrument because of poor sovereign rating will now be able to invest. Better run state public organizations can get better investments from abroad.
- Banks and institutions and companies can borrow with a competitive rate from the foreign instruments after the better rating.
- Rupee value is expected to be appreciated with more investments
What lies ahead in the investment rating
Even with the upgrade, China, Malaysia and South Korea, Thailand, South Africa and Russia have higher ratings than India, while Mexico and a few East European countries are at the same level. However, India is a more sought-after destination due to its growth potential and the fact that it has the largest number of institutions whose ratings are constrained by the sovereign rating.
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