Fitch Ratings has upgraded India's sovereign outlook to "stable" from "negative" citing the government's recent measures to contain the budget deficit.
The global ratings agency also cited "progress in addressing some of the structural impediments to investment and economic growth" as reasons for upgrade.
Since taking office in July 2012, Finance Minister P Chidambaram has pushed a series of reforms aimed at shoring up government finances and reviving investor confidence in an economy that grew at just 5 per cent in the fiscal year that ended in March, its worst in a decade.
Fitch had cut India's outlook to negative in June 2012, following Standard & Poor's which just last month retained its negative outlook on the economy.
Fitch had renewed its warnings of a downgrade in January 2013.
India's fiscal deficit was 4.9 per cent of GDP in 2012-13 compared with 5.7 per cent in 2011-12. Fitch expects the government to broadly meet its 2013-14 budget deficit target of 4.8 per cent of GDP.
"Today's outlook upgrade would give some medium term respite (6 months - 12 Months) and is largely a factor of government's reform measures for putting the fiscal house in order," Shakti Satapathy, fixed income analyst at AK Capital told Reuters.
The stable outlook would also give some near term stability in the domestic currency and bond market, he added.
The Indian rupee has lost nearly 10 per cent since May 1 falling to a record low of 58.98.
(With inputs from Reuters)
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