The rating upgrade comes after a gap of 13 years - Moody's had last upgraded India's rating to 'Baa3' in 2004. In 2015, the rating outlook was changed to 'positive' from 'stable'.
The 'Baa3' rating was the lowest investment grade, just a notch above 'junk' status.
Moody's has also raised India's long-term foreign-currency bond ceiling to Baa1 from Baa2, and the long-term foreign-currency bank deposit ceiling to Baa2 from Baa3.
Impact on rupee and stock market
G Chokkalingam, Founder & MD, Equinomics Research & Advisory believes the rating upgrade will improve foreign debt inflows and in turn strengthen the rupee, instilling confidence in the economy.
“Moody’s upgrade will trigger a virtuous spiral of more debt flows, equity flows, and FDI inflows, eventually strengthening the economic growth of the country,” he said.
Although he expects the market to rally nearly 2-3%, but eventually everything will boil down to concerns on the corporate earnings front and actual FII inflows.
A K Prabhakar of IDBI Capital also welcomed the move, saying it was much-awaited.
The rating upgrade will keep the rupee stronger, and will have a major impact on Bank Nifty since the cost of fund for recapitalisation will likely come down.
He expects Nifty50 to hit 10,700-10,900 by December end.
