Decisive poll outcome credit positive for India: Moody’s

India to emerge from stagflation soon, says Morgan Stanley.

US rating agency Moody’s Investors Service on Monday said that the strong mandate for the NDA alliance in the Lok Sabha elections was credit positive for India as it boosts the prospect that a stable government will address the country’s economic challenges.

“Moody’s believes that the new government’s strong mandate increases the possibility of a stable Central government that will pursue a shared economic agenda to address India’s macroeconomic challenges,” said the report ‘India’s decisive election outcome is credit positive’. Moody’s assigns a ‘Baa3’ rating to India, signifying moderate credit risk, with a stable outlook.

The landslide victory is credit positive for both India’s sovereign profile and corporate sector, while the effects for its banks are currently limited, it said. The credit profiles of public-sector banks, however, may experience positive effects from 2015, Moody’s added. It said the election results will have the immediate effect of sustaining investor sentiment, which has also recently boosted India’s equity indices and the rupee.

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“Moody’s also considers that the completion of the election will allow stalled policies relating to the corporate and infrastructure sectors to resume, a credit positive for the country’s corporates,” Moody’s VP and senior credit officer Vikas Halan said.

Standard & Poor’s Ratings Services had, on Friday, said the fiscal and economic reforms taken by the incoming government in the next two to three months will have “significant implications” on India’s sovereign credit rating.

“In our view, the challenge for the next government is to regain fiscal prudence in a sustainable way. Implementation of a goods and services tax could help stabilise government revenues, while potentially improving the country’s growth prospects, by promoting inter-state transactions, and general efficiency of the economy,” S&P said.

The agency has given ‘BBB-/ Negative/ A-3’ rating to India with a negative outlook. This means any downgrade would send the country to below investment grade.

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Meanwhile, US banking group Morgan Stanley on Monday said that India will emerge from the “stagflation type of environment over the next few quarters”.

“The election results could be an inflexion point for India’s story. The electorate’s strong and high quality mandate is for development, in our view. This increases the chances that the government focuses on accelerating growth and slowing inflation,” it said in a report on India.

“While in our base case forecasts we had assumed an outcome of a stable political government the actual outcome has been stronger than expected. Reflecting this optimism, we now expect India’s GDP growth to accelerate from 4.7 per cent in March 2014 to 6.8 per cent in March 2016 compared to our previous estimate of 6.2 per cent,” it said.