Upgrade evidences government’s effort
Chakraborty said that India was surrounded by concerns for its slower pace of reforms and doubts over the economic recovery. But, the outlook upgrade by Moody's has helped to come over these doubts. Moody’s noted in its report that banking asset quality should improve, without which the credit profile will continue to remain constrained. The upgrade has endorsed the steps taken by the Modi government. Chakraborty added that the upgrade news will act positively for the markets for at least the near term. However, he feels that the sentiments will shift into full optimism once the rating is upgraded.
Certain conditions to be met
Chakraborty projected rating upgrade to happen anywhere between 12-18 months, provided certain conditions are met. He elucidated that the rating upgrade will depend on how the government continues to remain on fiscal consolidation pathway till the next budget. Alongside this, the effectiveness of the RBI's inflation targeting framework as well as growth recovery will boost the probabilities of India earning a rating upgrade by next year.
Though outlook upgrade has uplifted the fixed income and money markets, but Chakraborty does not see the trend continue long. He explained that the impact of the change in outlook did not last long on the fixed income or money markets. He added that the currency market momentum is dependent upon the RBI's decision to allow appreciation of the rupee. Chakraborty alerted that given the immense supply pressure in April-May, the outlook upgrade has little role to play over a medium term but said that the effect will remain for at least couple of days.