Moody’s Rating Upgrade: What does it hold for investors?

Moody’s, the global credit rating agency, recently upgraded India’s rating from “Baa3” to ‘Baa2’ and changed its outlook on India from ‘stable’ to ‘positive’. This positive development cheered the stock markets, which were reeling under the weakening of rupee, rising crude oil prices and rising inflation data. The development is positive for India because the rating upgrade will instil confidence among foreign institutions investors (FIIs) and help India to reduce thecost of borrowing on dollar denominated debt.

There were many factors that helped India’s rise in its rating. India’s recent jump from the 130th rank to the 100th rank in ‘ease of doing business’, government’s recapitalisation announcement of public sector banks to resolve the NPA issue and Reserve Bank of India’s focus on containing inflation.

The rating upgrade indicates the rating agency’s positive outlook on the Indian economy and suggests thatthe growth potential offered by the economy presents India as a global investment destination. This will provide boost to the ‘Make in India’ campaign of the Modi government and encourage the Modi government to launch more economic reforms and adopt more investor-friendly policies in future.

Hence, stock market investors can expect better days ahead, despite the concerns being expressed on high valuations. However, taking a plunge right away can be a risky proposition as there are other concerns that need to be addressed by the government. These risk factors include, rising inflation, widening fiscal and trade deficit, weakening rupee, falling employment growth rate, decelerating industrial activity and flagging GDP growth rate. Hence, investors need to exercise caution in order to avoid mishaps.