{"id":8099,"date":"2022-09-08T11:48:39","date_gmt":"2022-09-08T11:48:39","guid":{"rendered":"https:\/\/blog.researchandranking.com\/?p=8099"},"modified":"2023-03-28T12:19:03","modified_gmt":"2023-03-28T12:19:03","slug":"moodys-retains-indias-sovereign-rating","status":"publish","type":"post","link":"https:\/\/www.equentis.com\/blog\/moodys-retains-indias-sovereign-rating\/","title":{"rendered":"3 Reasons Why Moody’s Retains India’s Sovereign Rating To Baa3 With A Stable Outlook"},"content":{"rendered":"
<\/div>\n

\u2018Moody’s retains India\u2019s Sovereign Rating<\/strong>;\u2019<\/strong> is a headline that greeted us this week. This is despite other agencies slashing their ratings.<\/p>\n\n\n\n

What does this rating mean? Will the Baa3 rating impact India\u2019s economic growth and should you know more about these ratings? The answer is a simple Yes. <\/p>\n\n\n\n

Moody\u2019s outlook rating reflects India\u2019s economic environment and the reforms that have contributed to India\u2019s growth and financial stability. Let us look at why Moody\u2019s retained India\u2019s Sovereign rating though it slashed India\u2019s growth forecast to 7.7% last week.<\/p>\n\n\n\n

What do Moody\u2019s ratings measure?<\/strong><\/h3>\n\n\n\n

Moody\u2019s Investor Service rates<\/a> fixed-income debt securities and assigns ratings based on the borrower\u2019s creditworthiness via a standardized rating scale. This scale measures expected investor loss in case of a default. It also measures long-term foreign currency deposits, issuer, and senior unsecured debt ratings, and the bank\u2019s baseline credit.<\/p>\n\n\n\n

Investors often look at Moody\u2019s, Fitch’s, or CRISIL’s ratings to gauge the risks associated with stock investment, bonds, and government securities.<\/p>\n\n\n\n

History of India\u2019s Sovereign Ratings<\/strong><\/h3>\n\n\n\n

Moody\u2019s had downgraded India\u2019s sovereign rating from Baa2 to Baa3, with a negative outlook in November 2019. But after India\u2019s economic growth and sustained bull run post-May 2020 Moody\u2019s changed India\u2019s rating from negative to stable in October 2021, two years after its downgrade in 2019. This year it has retained India\u2019s Sovereign rating and EXIM\u2019s long-term ratings to Baa3 with a stable outlook.<\/p>\n\n\n\n

It has also upgraded EXIM Bank\u2019s baseline credit assessment (BCA) and adjusted BCA from ba3 to ba2, which reflects an improvement in the bank\u2019s standalone capital credit strength.<\/p>\n\n\n\n

In June 2022, Fitch Ratings revised its outlook for India\u2019s long-term foreign currency Issuer Default Rating (IDR) to \u2018stable\u2019 from \u2018negative\u2019 after a gap of two years but has retained the lowest investment grade of \u2018BBB- for India\u2019s sovereign rating for the last 16 years.<\/p>\n\n\n\n

What Does A Baa3 Rating Mean?<\/strong><\/h3>\n\n\n\n

A Baa3 rating is the lowest investment grade of Moody\u2019s Long-term Corporate Obligation Ratings. These obligations are subject to moderate credit risk and considered medium grade with few speculative characteristics.<\/p>\n\n\n\n

Reasons for Retaining India\u2019s Sovereign Rating and Outlook<\/strong><\/h3>\n\n\n\n

Moody\u2019s said it retained the Baa3 rating with a stable outlook as India\u2019s credit profile shows its strengths like the large, diversified economy with a potential for high growth, its strong external position, and a steady domestic financial base to support government debt.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

It also believes the ongoing global<\/a> challenges such as the Russia-Ukraine conflict, rising inflation<\/a>, and tightened financial conditions globally will not affect India\u2019s economic recovery from the pandemic. India has higher capital cushions and liquidity now. Also, the negative reactions between the economy and the financial policies are fading.<\/p>\n\n\n\n

Though risks of high debt burden, low per capita income, weak debt affordability, and limited government effectiveness remain, analysts believe a positive economic environment will gradually reduce the government fiscal deficit in the next few years, avoiding a further decline of the sovereign credit profile.<\/p>\n\n\n\n

Reasons For an Upgrade In EXIM, BCA, And Adjusted BCA Ratings<\/strong><\/h3>\n\n\n\n
    \n
  1. The material improvements in asset quality and capital and its expectations of an increase in profit in the next 12 -18 months as the high-credit cost burden reduced drove Moody\u2019s to upgrade EXIM India’s BCA.
    <\/li>\n\n\n\n
  2. India\u2019s gross non-performing loan (NPL) ratio declined from 8.75% at the end of March 2020 to 3.56% as of the end of March 2022 because of improved recovery, upgrades, and write-offs. The EXIM bank continues to have high provisions against the declining stock of gross NPLs with a net NPL ratio of 0% as of 31 March 2022 with a provision coverage ratio of 100%, which is higher than other rated Indian banks.
    <\/li>\n\n\n\n
  3. The Indian government infused capital in the last few years improving EXIM\u2019s Capital. It reported a Capital Adequacy Ratio of 30.49% and a Tier 1 capital ratio of 28.58% as of 31 March 2022, higher than the 20.13% and 18.70%, respectively, as of 31 March 2020.
    <\/li>\n\n\n\n
  4. The ROA (Return on assets) rose to 0.5% as of the year ended March 2022 from 0.2% in the earlier quarter during the year, because as the asset quality improved the credit costs also declined in line with it.<\/li>\n<\/ol>\n\n\n\n

    EXIM\u2019s final Baa3 rating is a two-notch jump from its previous rating as Moody believes it will get staunch support from the Indian government (Baa3 stable).<\/p>\n\n\n\n

    India’s Economic Scenario Now<\/strong><\/h3>\n\n\n\n

    Despite the ratings, FIIs have been flocking to the Indian stock market<\/a>. In August, they turned Net Buyers with an inflow of more than Rs. 51,200 crores over the past year after months of pullback. In fact, they have been notable drivers of India\u2019s financial market recovery. It means, that FIIs don\u2019t specifically consider the rating when investing in Emerging Market Economies (EMEs) like India.<\/p>\n\n\n\n

    Will Moody\u2019s upgrade India\u2019s Sovereign rating?<\/strong><\/h3>\n\n\n\n

    Moody\u2019s could upgrade India\u2019s rating if its growth potential rose beyond expectations supported by effective economic and financial reforms that could augment private sector investments<\/a>.<\/p>\n\n\n\n

    But the ratings could fall if the economic conditions become worse due to low growth in the medium term and a re-emergence of financial sector risks. Despite challenges, Moody\u2019s retaining its Sovereign outlook is a positive sign for the economy.<\/p>\n\n\n\n

    The Q1 GDP may have fallen short of RBI\u2019s forecast; however, India is one of the fastest-growing economies today. September 2022 saw India officially overtake the UK to become the fifth-largest economy in the world by market capitalization. <\/p>\n\n\n\n

    That just means there are enough opportunities for you to invest in the economy and create wealth. All you must do is take a careful look at all the aspects of the businesses, and decide on your time horizon before you invest. Remember, Long Term = Wealth Creation.<\/p>\n\n\n\n

    <\/p>\n","protected":false},"excerpt":{"rendered":"

    \u2018Moody’s retains India\u2019s Sovereign Rating;\u2019 is a headline that greeted us this week. This is despite other agencies slashing their […]<\/p>\n","protected":false},"author":5,"featured_media":8102,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[11],"tags":[313,311,314,307,309,308,312,310],"class_list":["post-8099","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy","tag-forecasts-for-india","tag-growth-forecast","tag-india-growth-forecast","tag-india-sovereign-rating","tag-indian-economy","tag-moody-news","tag-moody-rating-india","tag-oil-prices"],"_links":{"self":[{"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/posts\/8099","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/comments?post=8099"}],"version-history":[{"count":0,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/posts\/8099\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/media\/8102"}],"wp:attachment":[{"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/media?parent=8099"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/categories?post=8099"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.equentis.com\/blog\/wp-json\/wp\/v2\/tags?post=8099"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}