International borrowings to be cheaper for India Inc

MUMBAI: Cost of borrowing for corporates and banks is set to come down following the upgrade of India’s sovereign ratings by Moody’s. Yields on bonds are expected to drop in coming weeks as the

ratings upgrade

has come as a complete surprise for markets.

“Usually, rating upgrades are anticipated 30-60 days in advance and the effect of the change lingers on till 30-60 days after the event. However, in the current case, as the change in ratings by Moody’s was completely unanticipated, the decrease in yields might materialise in a short duration,” said HDFC Bank chief economist Abheek Barua.

In its earlier rating of Baa3, India’s peers included South Africa, Hungary, Indonesia, Kazakhstan and Romania. The borrowing costs for these companies ranged between 4.3% and 9.3%. The cohorts under the new rating of Baa2 include Spain, Italy, Philippines and Oman. The borrowing costs for these countries range from 1.5% to 4.9%.

Bank of America president and India country head Kaku Nakhate said, “This ratings upgrade will help India Inc’s future external

borrowings

becoming cheaper, which in turn will lead to higher investments in manufacturing and infrastructure sector.” She added that, coupled with India’s improved ranking in the Ease of Doing Business index, Moody’s action will boost India sentiment across global boardrooms. Following the ratings upgrade, prices of bonds issued by Indian corporates rose in the international markets. An increase in bond prices results in a reduction in bond yields. Bond yields fell by 5 basis points (100 basis points = one percentage point).


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