S&P upgrades India | FinanceAsia

Standard & PoorÆs upgraded IndiaÆs debt for the first time in more than a decade to investment grade. It should have been a historic moment for the country but unfortunately no champagne corks were popped on trading floors across domestic markets as Tuesday was a holiday in many offices in India on account of Muharram. But even if offices had been open, it might well have been business as usual as bankers felt S&P's move was almost a foregone conclusion.

S&P predicted a stable outlook on India's foreign currency debt, raising the country's sovereign rating by one notch to BBB-, the lowest investment grade, from BB+. Moody's rates India's foreign currency debt investment grade and Fitch Ratings rates both foreign and local currency debt investment grade so S&P's upgrade makes it a long awaited hat-trick for the country.

S&P says: ôThe upgrade on India's ratings to investment grade reflects its strong economic prospects, external balance sheet and its deep capital market, which supports a weak but improving fiscal position."

V. Srinivasan, treasurer, JPMorgan India says: ôThe move by S&P should enhance capital flows into India and is generally positive for the country, specifically for the equities market and currency.ö

Amit Tandon, managing director of Fitch Ratings, agrees saying: ôOur rating upgrade last year was motivated by strong economic performance. We remain upbeat about prospects of the Indian economy and this is reflected in four recent company-specific ratings we have issued.ö

This bullishness on the Indian economy has already translated into large capital inflows in the equity market which have driven the Sensex to unprecedented 14,000 plus levels.

Bankers were less optimistic that the rating upgrade would translate to tighter pricing for bond issuances. One banker highlighted that Indian corporate paper already enjoys tight pricing, factoring in a higher rating than the India country rating.

This has been corroborated by recent bank fund raisings. On January 23, UTI Bank priced a $250 million floating rate note achieving record pricing of 47 basis points over three-month LIBOR. The UTI Bank issuance came on the heels of fund raisings by State Bank of India and a ômonsterö bond from ICICI Bank.

One positive is that a larger number of investors will now be willing to trade Indian paper as funds with restrictions on buying only investment grade paper will now be players in the market. With more demand, it seems likely that more issuers will also come to market. Investment bankers covering India seem set to continue to burn the midnight oil.