Moody's rating goes against people's mood: Sibal

For Prime Minister Narendra Modi and his officials this is the third validation from a global agency they’ve received in recent weeks

Analysts said the upgrade would lead to higher capital inflows, strengthening the rupee, and ease India Inc's access to overseas capital at lower rates.

Meanwhile the Sensex closed 236 points higher after the Moody's upgrade, while the NSE index rose almost 70 points.

The government may be rejoicing credit ratings agency Moody's upgrade on India's sovereign bond rating from Baa3 to Baa2 with a stable outlook, but critics feel that it is blowing the matter out of proportion. In its biggest single-day surge in six weeks, the rupee gained 31 paise to end at a one-week high of 65.01 against the dollar.

United States credit rating agency Moody's on Friday upgraded India's sovereign rating to Baa2 from its lowest investment grade of Baa3 after 13 years.

"The rating upgrades for IOC, BPCL and HPCL follow the upgrade of the sovereign rating and reflect the strategic importance of the oil marketing companies as they own and operate the majority of the country's fuel refining entities and most of the fuel distribution infrastructure", Moody's said.

Moody's upgrade, its first since January 2004, moves India's rating to the second lowest level of investment grade.

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"While a number of reforms remain at the design phase, Moody's believes that those implemented to date will advance the government's objective of improving business climate, enhancing productivity, stimulating investment, and ultimately fostering strong and sustainable growth", it added.

Even if recent economic reforms have seen near-term negative growth impacts, there have been some benefits.

Moody's said it expects India's real GDP growth to moderate to 6.7 per cent in the fiscal year ending in March 2018 from 7.1 per cent a year earlier.

On the other hand, top bankers said the upgrade is good for the markets as capital flows into the country - which were already at a high level before the upgrade - will get a leg-up as a large part of global capital allocations is rating linked.

SBI Chairman Rajnish Kumar said the rating upgrade is a "re-affirmation of how the world views India, which has been long pending and a thumbs up to the various reform measures". The agency also said that India's growth potential is significantly higher than most other Baa-rated sovereigns. "Maybe, the bank recap move convinced them that India is on the reform path and we mean business".

The rating upgrade elicited a quick response from the government with Finance Minister Arun Jaitley saying it is a "belated recognition of positive steps taken in the last few years".

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