Moody’s rating upgrade on the Indian economy is a good sign. In fact, there were many uncertainties regarding India’s economy after the demonetization and GST reforms. However, the upgrade in the ratings by Moody’s is a pleasant surprise. Moody is a US-based agency that has recently changed its view towards India. It has upped India’s rating from Baa3 to Baa2. To put it another way, it has changed its outlook from stable to positive.
Before understanding its implications on stock markets, let us understand what Moody’s is.
What is Moody’s rating ?
Moody’s Investor Service is a credit rating agency that provides international financial research on the bonds issued by the government of a country and commercial entities. It is one of the biggest credit rating agency in the world.
Impact of Moody’s Rating on Stock Market
The share markets are touching new heights. In fact, the Sensex is almost at a lifetime high now. So it becomes very interesting to have an upgrade from the Moody’s in current time. Furthermore, when the markets are already at a high, will this upgrade take the markets into a new orbit? This is a tricky situation. Let us assess the past performances of the stock markets when any upgrades or downgrades were received.
Sensex After Upgrade and Downgrade
The above chart suggests that the Sensex do react to the ratings given by different agencies. However, the markets have their own way. No one can predict them. In the above chart, there are three downgrades by the Moody’s. Furthermore, the markets in two cases have fallen after the downgrade. However, after a downgrade in 1990 by the Moody’s, the market has eventually risen up.
Markets After Upgrade Rating
In the above chart, the Moody’s have upgraded India’s rating four times. It also includes the upgrade given recently and whose impact is yet to be seen. Besides that, the other three ratings have seen different impacts on the Sensex. In two cases, the markets have seen a positive trend over the years after the upgrade. However, in one case the markets have shown a negative trend.
How to Interpret the Current Upward Rating
Moody’s have upgraded India’s rating in 2017 after 13 years. Given the past performances and the impact of different ratings, the markets showed the direct impact of the ratings. However, the markets have also shown a reverse impact in few cases. Therefore, it becomes equally difficult to predict the market movement based on the current ratings. One can expect the positive movement in the Sensex seeing the upgrade in rating. Nevertheless, one must not forget that markets have their own mind and no one can predict its movement accurately.
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