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Moody’s upgrades India’s bond rating

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Moody’s upgrades India’s bond rating

Moody's said it has upgraded the Government of India's local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to stable from positive.

The rating agency also upgraded India's local currency senior unsecured rating to Baa2 from Baa3 and its short-term local currency rating to P-2 from P-3.

Moody’s cited the government's continued progress on economic and institutional reforms such as the recently introduced Goods and Services Tax (GST), measures to address the overhang of non-performing loans in the banking system; and demonetization, among others, for its decision.

‘India has made positive progress on reform measures, which should assist in enhancing longer-term growth prospects for the country,’ Karan Talwar, emerging market debt investment specialist at BNP Paribas Asset Management told Citywire Asia.

‘The recently announced recapitalization for public sector undertaking banks was a further step in the right direction.

‘India has also been a beneficiary of the low inflationary environment, which has enabled the Reserve Bank of India to cut interest rates in 2017, and the country has also benefitted from capital inflows,’ he added.

Moody's believes that the reforms put in place have reduced the risk of a sharp increase in debt, even in potential downside scenarios.

It raised India's long-term foreign currency bond ceiling to Baa1 from Baa2, and the long-term foreign-currency bank deposit ceiling to Baa2 from Baa3.

The short-term foreign-currency bond ceiling remains unchanged at P-2, and the short-term foreign-currency bank deposit ceiling has been raised to P-2 from P-3. The long-term local currency deposit and bond ceilings remain unchanged at A1.

‘[However], the country faces some key challenges ahead as well, so security selection and market timing remains important from an investment perspective,’ Talwar warned.

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