Timing, as they say, is everything and this seems true even in the case of sovereign rating upgrades — as Moody’s latest move was well timed to lift the bond market.

Abhishek Gupta, an Economist at Bloomberg Intelligence, said that the move isn’t unexpected, yet as the early bond market reaction shows, the timing is opportune — correcting the undue bearish sentiment over the last few months. It could also tip the balance toward a rate cut at the RBI’s December meeting.

The immediate reaction to the Moody’s announcement from the bond market has been positive, with benchmark 10-year yields falling 10 basis points in early trading on Friday, according to Gupta.

The ratings upgrade should help turnaround the negative sentiment in the bond market. The recent sell-off wasn’t supported by fundamentals, with the market selectively focused on negative news.

The economy is likely to see an “immediate boost” in capital inflows in bonds and equities, meaning stronger demand for the rupee, according to Bloomberg Intelligence.

However, all through the day, policymakers in the Government, bankers, corporate honchos and economists were focused on separate high pitched debate as to the timing of the ratings upgrade and whether it was a “too late” an action from the international rating agency.

Most policymakers, including the top officials of the Finance Ministry and NITI Aayog, saw the upgrade as “belated recognition” of India’s structural reforms and the progress made on the ground in the recent years. After all, it took this international rating agency nearly 13 years for its next upgrade decision on India, they said.

This could be a pointer that either India did not meet up to their (Moody’s) mark on key macro-economic parameters in all these years to warrant an upgrade or that the high visibility of the reforms pursued by the Modi-Government has now prompted Moody’s to finally take notice of India’s improving macro-economic indicators and revise its rating, economy watchers wondered.

Gaurav Kapur, Chief Economist, IndusInd Bank, said that the timing of the move and nature of the action came in as a positive surprise.

“We were expecting such a move though sometime early next fiscal year considering that GST introduction has imparted some uncertainty on public finances,” he said.

While ratings are backward looking indicator, the timing of the upgrade is forward looking in nature, given the implementation risks on some of the key reforms, particularly GST and bank recapitalisation, according to Kapur.

The overall consensus seems to be conveying a somewhat different story.

If the Modi-Government were to get the GST implementation right and stabilise this tax platform in the next couple of months, the Finance Ministry mandarins may well be justified to once more seek a higher rating! Will the Modi-Government deliver on stabilising the GST system is still a million dollar question.

Also read: Moody's rating: Bond market euphoria could be shortlived

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