NEW DELHI (AFP) – Standard and Poor’s hiked India’s credit rating to investment grade, a move that paves the way for global funds prohibited from buying debt labelled as junk to invest in government bonds and other debt in the country.
The last time the country had a stable investment grade rating was in September 1990, about a year before it faced near default on foreign currency debt as reserves shrunk to around one million dollars.
The New York-based ratings agency said India’s sovereign local currency, or rupee, credit rating was raised to BBB-/A-3 from a speculative, or junk, grade of “BB+/B with a stable outlook linked to fast economic growth and a declining budget deficit.
“India’s economic prospects remain strong and are rising gradually, with GDP trend growth likely to average more than 7.5 percent in the medium term,” Standard and Poor’s credit analyst Ping Chew said in a press release.
Sanjeet Singh, vice president of ICICI Securities in Mumbai, said the decision to lift India’s debt rating to investment grade means that major funds such as US-based Fidelity could buy bonds issued by the government or companies.
“It’s great news,” Singh said. “Debt ratings for companies are usually constrained by the sovereign rating, so this means that debt issued by corporates with good balance sheets will likely become investment grade as well.”
The ratings agency said the country should continue sound fiscal policy which is guided in India by a Fiscal Responsibility Act that mandates steady reductions in the budget deficit to ensure the rating.
“The ratings on India remain constrained by the country’s weak fiscal profile, especially its high government debt burden and deficit, which is still one of the worst among all rated sovereigns,” the ratings agency said.
Indian markets are shut Tuesday to mark an Islamic religious festival.