In a big vote of confidence in the Modi government, rating agency Moody's today raised India's credit outlook to 'positive', while Fitch projected faster growth -- raising hopes for an upgrade in its sovereign rating in the next 12-18 months.
India's sovereign rating by Moody's stands at 'Baa3', the lowest investment grade and just a notch above 'junk' status, while it earlier had a 'stable' outlook for the country.
Fitch, which maintained its equivalent 'BBB-' rating with stable outlook, on the other hand projected 8 per cent GDP growth for the current fiscal, higher than 7.8 per cent estimate of the RBI. It also indicated positive rating action if the government follows its fiscal consolidation roadmap.
Moody's sovereign rating analyst Atsi Sheth told PTI, "Our positive rating outlook for India reflects our view that the probability has now increased that over the next 12-18 months India's sovereign credit fundamentals will improve to levels consistent with a rating higher than its current Baa3 rating."
The sovereign rating and outlook of a country are often used by foreign investors and global bodies to gauge its investment climate. They also have a bearing on the cost of overseas borrowing by domestic companies.
On the outlook upgrade, Finance Minister Arun Jaitley said the action is "significant", but the government has to do more to further boost economy.
"Moody's has changed rating outlook to positive from stable and affirms Baa3 rating. The upgrade in outlook is significant but we've to do more," he tweeted.
The stock markets responded positively with the benchmark BSE Sensex rising 177 points to one-month high of 28,885.21.
Since 2004, Moody's has rated India at Baa3 -- at par with countries like Indonesia, Iceland and Turkey. Another agency S&P also has a similar rating for India and it recently upgraded its outlook from 'negative' to 'stable'.
RBI Governor Raghuram Rajan said it is a "positive perception of what we have done over the past few quarters."
He, however, cautioned that the government and regulators should not lose sight on what more needs to be done.
"We should not celebrate upgrades as we did not worry about downgrades. There are a lot of low-hanging fruits that need to be picked," he added.
