India's Ratings Upgrade: Brokerages View S&P's Move As 'Unambiguously Positive'
UBS says the confidence boost from rating upgrade has trickle-down effects and this can benefit state-owned enterprises as well.
Brokerages like JP Morgan view S&P Global Ratings' upgrade of India's ratings as "unambiguously positive", while UBS said that the rating for Indian Banks and state-owned enterprises could be next.
S&P Global Ratings upgraded India’s ratings from ‘BBB-’ to ‘BBB’, an upgrade after 18 years. This follows S&P’s revision of India’s outlook to positive in May 2024.
S&P stated India’s fiscal management, economic growth and monetary policy as the three key reasons for the ratings upgrade. It expects India’s GDP to grow at 6.8% annually over the next three years and mentioned that India’s switch to inflation targeting has anchored inflation expectations.
Importantly, S&P also believes that the 50% tariffs on India by the US, if imposed, would not significantly impact India’s growth prospects, given that Indian goods to the US are just 2% of the GDP.
JP Morgan views this rating upgrade as "unambiguously positive" and that this upgrade should boost sentiment and potentially lower risk premia as well as borrowing cost in the economy. Morgan Stanley concurred to this view of ratings upgrade could lower borrowing cost of capital as well. UBS had an interesting view stating that the confidence boost from rating upgrade has trickle down effects and said this could benefit Indian state-owned enterprises as well.
In terms of bond valuations, UBS highlighted that they see the move by S&P as medium-term positive for local bond yields as this will encourage foreign capital inflows. Combined with their expectations of RBI’s rate cuts, UBS anticipates local yields will gradually decline to just below 6% by June 2026.
Brokerage firm Citi highlighted that this earlier-than-expected upgrade reflects strong fiscal consolidation commitment and said that the market will now watch if the consolidation continues or whether the rating upgrade will give some breathing space to ease the fiscal to support growth in the difficult global backdrop. But they also stated that rating upgrade from just one agency may not immediately increase debt flows.
