Moody's: India's Global Bond Index Inclusion Insufficient for Rating Boost

According to a credit officer at the rating agency, structural reforms are required in India to improve its fiscal metrics, thus the country's membership in a major global bond index will not be sufficient for Moody's Ratings to upgrade it from the lowest investment grade.

Christian de Guzman, senior vice president at Moody's Ratings, stated in an interview on Monday that "I don't necessarily think that bond market inclusion is going to be material addition to strengths that we already ascribed to government's ability to fund itself.

"Improving fiscal metrics will require strong growth and the implementation of structural reforms that would lead to a pickup in private sector investment." De Guzman's remarks are in line with the generally optimistic view of investors across the world toward the nation, which is nuanced by warnings about the macroeconomic difficulties that the South Asian nation faces. 

JPMorgan Chase & Co.’s Inclusion

In June, JPMorgan Chase & Co. will add India to its index of developing markets bonds. The business estimates that this move might bring in up to $25 billion for the debt market in India. India will also be added to Bloomberg Index Services Ltd.'s developing markets index starting in January. Additionally, India has been added to FTSE Russell's watch list for possible inclusion in its emerging market bond index.

With this inclusion, he claimed, India's economy will be able to smoothly take in significant inflows. Given that the country's sizable banking and insurance sectors are a dependable source of funding and a significant credit strength, "our assessment of India's government liquidity risk is actually already very strong." 

Access to bond indices, however, won't materially reduce India's borrowing costs, he claimed, since inflows are tiny in comparison to the country's $3 trillion total public debt. According to him, domestic macroeconomic variables will affect yields, such as policy rates and the nation's history of managing inflation. According to him, raising "debt affordability" will be a crucial component of any future upgrades to India's sovereign ratings.

To summarize

Although India's fiscal deficit has decreased in recent years, compared to its counterparts, it still has a high level of debt, he noted. India has a steady outlook and is rated by Moody's at its lowest investment grade of "Baa3." The index's inclusion and upgrade forecasts coincide with predictions that India's economy will grow at one of the highest rates in the world, by more than 7% in the current fiscal year, which began in April.