Indian market boom will be sustained after Modi ascension: Moody’s

The new high that Indian stock markets have achieved since the rise and rise of India's next Prime Minister Narendra Modi will not be short-lived but is likely to be sustained, according to an assessment by Moody's Investors Service released today.

"The significant parliamentary majority won by the BJP-led NDA in India is likely to sustain the investor sentiment which has recently boosted equity indices and the rupee," Moody's said in a note.

Any change in India's sovereign credit profile hinges upon the government's fiscal position, regulatory constraints on investment and output and growth in social and physical infrastructure, the ratings agency added, while projecting a downside risk to 5 per cent in GDP growth this year.

It has currently assigned a 'Baa3' rating to India, signifying moderate credit risk with a stable outlook.

While policy measures to revive the economy are likely over the coming months, India's growth, fiscal and inflation metrics are unlikely to improve immediately, Moody's said. "We expect GDP growth to continue to be below potential, at about 5 per cent this year, and the possibility of a sub-par harvest due to El Nino effects poses downside risks," it said.

The agency said the impact of election results on the country's credit profile will be apparent over the next several months as economic policy measures are implemented. In the medium term, the extent to which these steps revive the economy will depend on the specific measures adopted by the new government and the pace of their implementation.

''Economic trends will take longer to improve than [market] sentiment did," Moody's said. "Nonetheless, industrial momentum could pick up in the second half of the year as stalled investment resumes and consumer confidence increases."