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Banks Help Lead India Stock Rally as Moody’s Lifts Credit Rating

Banks Help Lead India Stock Rally as Moody’s Lifts Credit Rating

By  Santanu Chakraborty  and Ameya Karve With assistance by Nupur Acharya, and Vivek Shankar Source: Bloomberg.com Lenders advance as natio

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By  Santanu Chakraborty  and Ameya Karve

With assistance by Nupur Acharya, and Vivek Shankar

Source: Bloomberg.com

  • Lenders advance as nation’s upgrade will reduce credit costs
  • Moody’s says reforms reduce risk of sharp increase in debt

India’s equity benchmark rose for a second day after Moody’s Investors Service raised the nation’s sovereign bond rating for the first time since 2004, boosting bank stocks.

The S&P BSE Sensex climbed 0.7 percent to 33,342.80 at the 3:30 p.m. close in Mumbai. Metals, property and banks were the biggest gaining sub-indexes. The NSE Nifty 50 also increased 0.7 percent to 10,283.60, rising back above its 50-day moving average.

The S&P BSE India Bank Index advanced 1.2 percent, extending its gain this year to 41 percent. Bank stocks have been helped recently by India’s plan to inject 2.11 trillion rupees ($32.4 billion) of capital into state-controlled lenders over two years.

Elsewhere, Maruti Suzuki India Ltd. surged 2.3 percent to a record after Toyota Motor Corp. said it will consider a cooperative structure with Suzuki Motor Corp. to start sales of electric vehicles in the Indian market in 2020.

Moody’s upgraded India to Baa2 from Baa3 and said reforms being pushed through by Prime Minister Narendra Modi’s government will help stabilize rising levels of debt — a shift from the lowest investment-grade ranking to the second lowest.

Retail investors have piled into financial assets since Modi moved to ban high-value currency last November, 2 1/2 years after taking office. The clampdown took the sheen off property and gold, and caused deposit rates to drop as the move left banks flushed with liquidity.

Domestic funds are headed for a sixteenth-straight month of net stock buying in November. Overseas investors have bought a net $2.2 billion of local equities so far this month, expanding purchases from October after two months of selling.

Here’s what investors and strategists are saying about Moody’s upgrade:

Chakri Lokapriya (Mumbai-based managing director at TCG Asset Management)

  • The ratings upgrade is very positive for banks, infrastructure and cyclical sectors
  • “Banks will benefit strongly as their credit costs come down, leading to a reduction in interest costs for infrastructure and manufacturing companies.”

Navneet Munot (chief investment officer at SBI Funds Management Pvt.)

  • The upgrade comes on the back of a jump in the World Bank’s ease-of-doing-business ranking and improves the confidence of global investors
  • Global factors such as monetary policy stances of major central banks and local factors such as a revival in company earnings will also determine foreign flows into India
  • Long-only domestic investors like SBI always expected a rating upgrade

Vikas Gupta (chief investment strategist and chief executive officer at OmniScience Capital)

  • More investors will look at Indian stocks for a possible overweight position within emerging markets
  • Current Indian equity rally is in a “very early stage” based on bargains still available
  • Stocks will get more sustained foreign inflows of “quite substantial” amounts over the next year
  • “We expect that many more global emerging-markets portfolios will go significantly overweight on India”

Nischal Maheshwari (head of institutional equities at Edelweiss Securities Ltd.)

  • Upgrade was expected given government’s reform measures and steps to improve the ease of doing business in India
  • This will lead to a reduction in borrowing costs
  • Upgrade will help foreign investors maintain their commitment to India despite concern over high valuations