What Investors Say India's Rating Upgrade Means for Asset Prices

Moody's Upgrades India For First Time Since 2004

Moody’s Investors Service’s decision to boost India’s sovereign rating is a step forward for the developing nation, but the reaction in assets may be more “knee-jerk” than long-lived, according to investors.

The rupee jumped with bonds as Indian markets opened to the news Friday, while the Sensex stock index rose the most since the start of the month.

Moody’s upgraded India by one step and said reforms being pushed through by Prime Minister Narendra Modi’s government will help stabilize debt. The rating boost comes after a selloff in Indian sovereign bonds this week that was triggered by concerns over quickening inflation.

Here’s what market players had to say:

Luke Spajic (head of portfolio management for emerging Asia at Pacific Asset Management Co. in Singapore)

  • “The upgrade came sooner than expected. India has undertaken some tough but necessary reforms like demonetization and the GST, the benefits of which are yet to be fully calculated”
  • “India is on the right long-term path with capital markets -- in both debt and equity -- pricing in potential improvements in investment quality”

Lin Jing Leong (investment manager, Asia fixed income, at Aberdeen Standard Investments in Singapore)

  • “The upgrade has been long time coming” given Modi’s reform ambitions. “This is not a surprise -- we do believe all the rating agencies have been behind the curve somewhat”
  • Initial Indian market reaction is likely to be knee-jerk, but we still expect dollar-India credit spreads, onshore India bonds and the rupee to continue outperforming the broader Asia and emerging-market bloc

Navneet Munot (chief investment officer at SBI Funds Management Pvt. in Mumbai)

  • This will boost global investors’ confidence in India, but factors like world monetary policy shifts and company earnings will also be key to foreign inflows
  • Investors like us who have long positions on India always expected an upgrade
  • The firm has been boosting equity holdings in Indian corporate lenders, industrial and telecommunications companies

Nischal Maheshwari (head of institutional equities at Edelweiss Securities Ltd. in Mumbai)

  • “Equity markets have already given a thumbs up to the news” 
  • It will lead to a reduction in borrowing costs, which is a major improvement 
  • “For foreign investors in equity, it doesn’t change much as their concerns around high stock valuations remain. However, their commitment to the country is in place and the upgrade will only help reiterate their position”

Shameek Ray (head of debt capital markets at ICICI Securities Primary Dealership in Mumbai)

  • Foreign investors won’t be able to take full advantage of the positive sentiment from the upgrade as quotas for them to buy into rupee-denominated government and corporate debt are full, Ray says
  • “Whenever these quotas open up there will be keen interest to take India exposure,” but in the meantime Indian companies will get more access to offshore markets 
  • “We could see them pricing dollar or Masala bonds at tighter levels” 

Ken Hu (chief investment officer for Asia-Pacific fixed income at Invesco Hong Kong Ltd.)

  • The upgrade confirms Invesco’s positive view on India’s structural economic reforms
  • “With more political capital, Modi and his party are able to launch more difficult but more impactful structural reforms. The positive feedback loop will continue to lead to more credit rating upgrades of India in future” 

Chakri Lokapriya (managing director at TCG Asset Management in Mumbai)

  • The upgrade is “very positive for banks, infrastructure and cyclical sectors” 
  • “Banks will benefit strongly as their credit costs come down leading to a reduction in interest costs for infrastructure and manufacturing companies”

Ashley Perrott (head of pan-Asian fixed income at UBS Asset Management in Singapore)

  • The upgrade is a bit of a surprise, so the market is likely to see some initial bond-spread tightening
  • “But raising one notch does not make much difference from a fundamental perspective” 

Avinash Thakur (managing director of debt capital markets at Barclays Plc in Hong Kong)

  • “The upgrade should help issuers from India as they are no longer on the cusp of investment grade”
  • “It makes a big difference to investors and we will see more dollar bond supply from India”

— With assistance by Ameya Karve, Nupur Acharya, Santanu Chakraborty, Kartik Goyal, Lilian Karunungan, and Annie Lee

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