(Reuters) - Standard and Poor's raised the outlook for India's "BBB-minus" rating to "stable" from "negative," saying the country's government mandate and improved political setting offered a conducive environment for reforms.
S&P had cut India's outlook to "negative" in April 2012. India is now rated at the lowest investment grade with a "stable" outlook by all three major global credit agencies.
COMMENTARY:
SOUMYA KANTI GHOSH, CHIEF ECONOMIC ADVISER, STATE BANK OF INDIA, MUMBAI
"S&P's upgrade of India outlook should bore well for foreign inflows and borrowing cost will also come down for companies. We expect the fiscal deficit to fall below 4 percent of GDP in this fiscal year and further below 3 percent in 2016. If that happens, then don't be surprised to see India's sovereign rating being upgraded by S&P."
RADHIKA RAO, ECONOMIST, DBS, SINGAPORE
"The S&P rating outlook revision is an affirmation of the economy's growth prospects, macro stability and lower vulnerability of external balances. The government, backed by a decisive mandate, and a credible inflation-fighting central bank have provided a positive backstop for the economy and is likely to boost investor confidence in the months ahead. Improved foreign reserves stock and a comfortable balance of payments position act as additional buffers against external volatility.
While some quarters will make a case for a rating upgrade next, the latter is still some distance away as some clarity is still required on the fiscal consolidation efforts, take-off pace of the reform agenda and sustained pick-up in growth in a controlled inflationary environment."
INDRANIL PAN, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI:
"The negative outlook determined probability of a downgrade. So, to that extent, an upgrade on the outlook to stable increases chances of a rating upgrade. Today, the political set up is looking more stable, inflation is coming down, external sector has corrected in a significant way and you can have the benefits on the fisc due to falling oil and commodity prices. But it is still a long way for a rating upgrade for India unless there is absolute clarity on the fiscal deficit."
SHAKTI SATAPATHY, SENIOR FIXED INCOME STRATEGIST, AK CAPITAL SERVICES LTD, MUMBAI
"The revision in outlook is undoubtedly a welcome step and due acknowledgement of the new government's effort in proactively restructuring the fiscal front and investment sustainability. The recent measures taken by the government clearly reflect an intent in reviving the economy into shape. Also, the traction and strategy in attracting foreign inflows seems sustainable. However, the near-term concern would revolve on supply side food inflation front."
SOUMYAJIT NIYOGI, ANALYST, INTEREST RATE & EQUITY, SBI DFHI
"We strongly believe that an outlook upgrade from S&P was warranted at this juncture. It was only a matter of time before it came, since the other two major agencies already have a stable outlook on India. The most critical aspect of S&P comments is that it stresses the changes in political scenario with the coming of the Narendra Modi regime. On the government bonds front, foreign investors who were earlier cautious about India will now be more willing to invest, since there is greater margin of safety as far as credit worthiness is concerned. Of course, this is only possible if the government increases debt limits for FIIs. I think we are getting closer to an India sovereign rating upgrade, although this might still take 1-2 years."
RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI
"This is the first step towards improving the rating. At the time India had its election, S&P had said they would watch for structural reforms. And the fact they have already revised the outlook means whatever measures have been taken in the budget as well as subsequently, S&P thinks those are going to be growth positive.
The outlook change has come also because of the kind of stability India has acquired on the external sector front. On the whole, I feel whatever Thursday's (launch of) 'Make in India' (initiative) and the kind of steps they have taken to improve administrative machinery, decision-making processes, all that has been factored in."
KILLOL PANDYA, SENIOR FUND MANAGER - DEBT AT LIC NOMURA ASSET MANAGEMENT, MUMBAI
"Such action has come after a long time and underlines the green shoots in the economy. It shows India is on the mend. It's a big boost for sentiment. Stocks will appreciate and by proxy currency too. Although not much will happen in the bond market at ground level. This goes on to show that the Narendra Modi-led government has instilled a lot of confidence among foreign investors and stakeholders."
SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI
"The upgrade is more of a reinforcement of improving macro-economic fundamentals and macro-economic stability. I think it's more of reiteration what we have seen already happen over the last three months. It just adds to the confidence because capital flows have anyway been strong and robust over the last few months.
"For a ratings upgrade, we need to see a credible pick up in investment cycle, while the enablers are getting created, larger confidence will emanate once all these translate into numbers. And that investment-led growth begins to anchor inflation expectations."
U.R. BHAT, MANAGING DIRECTOR, DALTON CAPITAL ADVISORS, MUMBAI
"S&P's action is positive for markets. This just goes on to show that cyclical recovery in Asia's third-largest economy is on the right path. India's macro finances are getting into good shape. There are expectations of buoyancy in government's fiscal health. India's fiscal deficit targets now look more achievable."
(Compiled by Mumbai markets team; Editing by Anand Basu, Biju Dwarakanath and Prateek Chatterjee)
