Rating upgrade fires up bond market, yield shoots up

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The benchmark BSE Sensex soared over 400 points and the NSE index Nifty was trading above the 10,300 mark as worldwide rating agency Moody's has upgraded India's sovereign bond rating to Baa2 from Baa3 with a stable outlook and also noted continued progress on economic and institutional reform will enhance India's high growth potential.

On the back of Moody's rating upgrade for Indian sovereign bonds on Thursday, the Indian rupee opened at 64.72 per dollar versus previous close 65.32.

"We have been expecting it for a long time and this was long overdue and is very positive for the market".

Asked if the government will keep in mind the rating while reviewing fiscal deficit target next month, Subramanian said: "Government policies are dictated by what we have to do in terms of our own objectives, macroeconomic reforms and reviving growth".

Moody's added that the high debt burden, however, remains a constraint on the country's credit profile.

Moody's has 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.

Finance Secretary Hasmukh Adhia also said the path that the government has chosen for long-term reforms and fiscal consolidation is well recognised by investors already.

"However, as disruption fades, assisted by recent government measures to support SMEs and exporters with GST compliance, real GDP growth will rise to 7.5% in FY2018 (2018-19), with similarly robust levels of growth from FY2019 (2019-20) onward".

Reports suggest that the global rating company said the reforms undertaken by the government would lead to an enhanced business environment, fuelling the foreign and domestic investment, and subsequently the growth momentum.

The agency said challenges from implementation of the GST, ongoing weakness in private sector investment, slow progress with resolution of banking sector asset quality issues, and lack of progress in land and labour reform remained key issues. "While the capital injection will modestly increase the government's debt burden in the near term, it should enable banks to move forward with the resolution of NPLs", said Moody's.

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