Moody's reiterates stable outlook on India

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MUMBAI: Moody's on Monday reiterated its stable outlook on India's Baa3 sovereign rating, Bloomberg cited analyst AtsiSheth.

India's rating is supported by low levels of overseas government debt and adequate reserves for balance of payments needs in the near term, Sheth said in an email to Bloomberg. "The rating is also supported by domestic savings rate," it added.

India's sovereign rating is at the lowest investment grade level. Moody's said that it will continue to ***** the country's foreign exchange reserves adequacy. "India has adequate reserves for near-term BoP payments," it said.

According to Moody's, flows are unlikely to accelerate unless growth outlook improves. "Fiscal policy is the weakest aspect of Indian economy," it said.

Earlier in the day, in an interview with ET Now, Sheth said, "India has had certain amount of capital controls before and will likely continue to have capital controls into the future. Indian authorities have been very clear that capital account liberalisation is something they will address with caution."

"In our view, India has always had capital controls. The measures announced recently were indeed adjustments in the amounts of controls. So depending on what your own view is, you can interpret it as new capital controls or an adjustment of capital controls. But the fact is that there were capital controls before, there will be capital controls now and the amount of control is what is being adjusted now," she added.

"In my view, what is affecting the attractiveness of the country as an investment destination are two factors. One is the growth outlook that we are seeing coming in and the second factor is the policy environment," Sheth said.

"We saw over the last year a flurry of announcements which have been seen positively by some because they open the doors to investment in certain sectors and they liberalise regulation in certain other sectors. But the net result of all those announcements has still not reflected in the growth. There is still uncertainty as to what next will come from the government that will really propel an improvement in the investment outlook."

"Until there is some clarity that the government is going to take measures that will actually lead to private investors making direct investments, the attractiveness of India as an investment destination will remain subdued," she added.

Earlier today, The rupee fell past 63 per dollar to a record low on sustained dollar demand from state-run and foreign banks.

The rupee closed at 63.13 to a dollar, down 2.4 per cent on the day. The currency closed trading on Friday at 61.65/66 (not 61.55/56).

Some dealers are expecting further dollar selling by the RBI as well as other measures to prop up a currency that is down 10.8 per cent in 2013, making it the worst performer in emerging Asia.

The rupee's tumble has fuelled expectations of more action from the Reserve Bank of India (RBI), which last week curbed outflows from companies and individuals, roiling stock and bond markets on Friday. Policymakers later stepped in to assuage nerves that the government was not looking at curbing foreign money outflows.

Moody's reiterates stable outlook on India's Baa3 sovereign rating - The Economic Times

 

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World Bank says gloom overplayed

The rupee plunged to a new low and shares tumbled another 2% on Monday even as the World Bank's chief economist said the country's economic problems were being "overplayed".

Kaushik Basu said India was not in danger of a full-blown economic crisis, despite mounting fears about Asia's third largest economy, which is struggling with a gaping current account deficit that has helped push the rupee to record lows.

"Growth may not have bottomed out. We have further to go (down), but the situation is not as bad as is being captured by the mood and captured in the headlines," Basu told an audience in New Delhi.

Basu, who was an adviser in the Indian finance ministry until September, said the situation was different from 1991 when India had to seek a bailout from the International Monetary Fund in what was considered a national humiliation.

"India is nowhere near the 1991 crisis. The gloom is being overplayed," he added.

The partially convertible rupee, now Asia's worst-performing major currency this year, fell to 62.70 to the dollar, past its previous low of 62.03 on August 16, on concerns about the slowing economy.

Indian shares, which fell nearly 4% on Friday, plunged another 2.11% or 392.86 points to 18,205.32 points in afternoon trade.

Nervousness rose over the currency as foreign investors pulled out cash.

Yields on benchmark 10-year government bonds jumped to over 9% - their highest since November 2011 - with a higher rate indicating a lack of willingness to invest in the paper.

Dealers said they feared the rupee could weaken further on concerns that a series of central bank measures over the past three months would not help it.

At Monday's new low, the rupee has fallen over 14% against the dollar this year, outstripping the yen in its tumble.

Investors awaited fresh measures from the Reserve Bank of India (RBI) and the government to aid the rupee on Monday, but there was no intervention by early afternoon.

"The market is so panicked that 63 is a possibility," said Param Sarma, chief executive with consultancy firm NSP Forex, referring to the rupee's level.

Sarma said he expected the RBI to intervene in the forex markets to prop up the currency, but it would not help much.

"There is no respite for the rupee," he said.

Last Wednesday, in the latest of a series of measures to prop up the currency, the RBI spooked investors when it tightened controls on the amount of money Indian firms and individuals can send abroad.

The move has been criticised as a disturbing throwback to the days before India unleashed its economic liberalisation drive in the early 1990s, when Indians' access to foreign exchange was strictly limited.

In the past few weeks policymakers have raised short-term interest rates, announced plans to let state firms raise foreign funds abroad, and curbed gold imports in a bid to narrow the deficit and stabilise the rupee.

Emerging-market currencies have been hit by the prospect that the United States will roll back massive stimulus measures. These have been responsible for huge inflows of foreign investment into developing countries.

India relies on foreign capital to fund its current account deficit.

Since June 1, overseas funds have pulled out $11.58 billion from India's stock and debt markets.

Sonam Udasi of IDBI Capital Markets said: "For all investors, growth remains the most critical issue. Until that gets back on track, the nervousness will remain."

India's growth slackened sharply to a decade-low of 5% in the year to March amid a sharp slowdown in industrial activity.

The Congress-led government has been desperate to revive the economy, fearing a voter backlash in elections due by next year.

Re plunges, shares fall another 2%; World Bank says gloom overplayed - Hindustan Times