How India's rating upgrade will impact firms like HDFC, RIL.

MUMBAI: Indian companies are set to benefit from the country’s rating upgrade for the first time in 14 years as investors would be keen to lend to corporations from the country because of their better risk profile. 

Companies looking to borrow dollar funds from abroad will benefit especially as higher rating will directly lower cost of borrowing, especially at a time when the RBI is unlikely to lower its benchmark rate amid rising inflation. The optimism is already reflected in premiums on dollar-denominated Indian corporate bonds over U.S. Treasuries fell by around 5 basis points 

“Top rated companies like HDFC and Reliance along with public sector undertakings like State Bank of India and Bank of Baroda will benefit immediately because their rating is closely linked to the sovereign,’’ said Aashish Kamat, CEO UBS India. ``There could be a direct 20 basis points to 50 basis points lowering in the overseas rate of borrowing for these companies.” One basis point is 0.01%. 

In fact Moody’s already upgraded the highest rated companies in line with the sovereign upgrade. Long term rating for Export-Import Bank of India, HDFC Bank, Indian Railway Finance Corporation Limited (IRFC), SBI, BPCL, HPCL, Indian Oil, and Petronet LNG were revised to Baa2 from Baa3, almost immediately. 

Indian companies are using overseas market to lower their borrowing costs as the Reserve Bank of India kept interest rates high to fight inflationary pressures. Indian companies and banks have sold $12.5 billion of foreign-currency bonds so far this year, 54 percent higher than year earlier, data from Bloomberg shows. Of this, more than a quarter was accounted for by banks. 

“The upgrade will result in PSUs, Banks and corporates take advantage of lower interest rates in global markets,’’ said Kaku Nakhate, India country head, Bank of America. ``In addition, government borrowings will become cheaper, aiding the planned massive infrastructure build out.” 

Moody’s action could also draw a new set of investors which rely on signals from the rating industry for their investment decisions., 

“A new set of investors may start participating in their bond sales particular after the rating upgrade,” said Ashish Vaidya, head of markets for India at DBS Bank. 

India’s upgrade now means that it is one-level shift from the lowest investment-grade ranking and on par with the Philippines and Italy. 

“Top-rated Indian companies will be able to take advantage of rating upgrade. These companies are likely to see marginal cost benefits when they will raise money from overseas markets,” Vaidya from DBS said.