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Stock market to ignore Moody's rating action; economy improving: Experts

In November 2017, Moody's had upgraded India's sovereign bond rating for the first time in nearly 14 years.

Swati Verma  |  New Delhi 

Brokers trade at their computer terminals at a stock brokerage firm in Mumbai. Photo: Reuters

Stock market is likely to ignore Moody's credit ratings downgrade as the equities always discount future in advance while the rating agencies' assessment is based on the past - events that have already happened, say market experts. The worst for the Indian economy is on the verge of getting over with good monsoon, encouraging corporate results, and likely robust FDI inflow in place. Hence, there is no need to panic, they assure.

India’s credit ratings outlook was cut to negative by Moody’s Investors Service on Friday, the first step toward a downgrade, as concerns mount the economic slowdown will be prolonged and debt will rise. Moody’s projects a budget deficit of 3.7 per cent of gross domestic product (GDP) in the year through March 2020, a breach of the government’s target of 3.3 per cent, as slower growth and a surprise corporate-tax cut curbs revenue. The foreign currency rating was retained at Baa2, the second-lowest investment grade score. CLICK TO READ FULL REPORT

"There is a clear dichotomy between rating agencies' assessment and stock market performance. While rating agencies always takes into account present situation, the stock are always forward-looking and the Indian economy outlook is not that bleak. Therefore, I won't be surprised if market comes back in the green," said G Chokkalingam, founder & managing director of Equinomics.

The benchmark index S&P BSE Sensex on Friday opened over 100 points lower and was still trading in the red till the time of writing of this report.

Moody's have been fairly inconsistent. It upgraded India's outlook in November 2017, citing there were reforms and the new government was doing a lot of productive-enhancement measures. However, since October 2017, the economy hasn't done too well. And, now it has downgraded the Indian economy at a time when there has been a slew of solid reforms by the government to spur economic growth, said Dhananjay Sinha, Head of Strategy Research and Chief Economist at IDFC Securities Limited.

“On the global front, too, things are changing for better such as signs of improvement in US-China trade relation. Due to this, some positive spillover could happen. In my view, Moody's was wrong in October 2017 and potentially it is wrong this time, too," Sinha added.

In November 2017, Moody’s had upgraded India’s sovereign bond rating for the first time in nearly 14 years, saying structural reforms undertaken by the Narendra Modi government will boost growth and reduce the debt burden.

First Published: Fri, November 08 2019. 10:31 IST