HOME         WEBSITE         SUBSCRIBE           E-GREETINGS   
                               

Monday, May 19, 2014

Moody's: India's decisive election result is credit positive

Moody's Investors Service says that the landslide victory by the opposition Bharatiya Janata Party (BJP) in India's elections is credit positive for both its sovereign profile and corporate sector, while the effects for its banks are currently limited, although the credit profiles of public-sector banks may experience positive effects from 2015. 

Moody's believes that the new government's strong mandate -- which shows an overwhelming majority of 334 seats in India's 543-member Lower House for the BJP-led National Democratic Alliance (NDA) -- increases the possibility of a stable central government that will pursue a shared economic agenda to address India's macroeconomic challenges. 

From a broad sovereign perspective, the results of the election -- announced on May 16 for polls carried out from April 7 to May 12 -- will have the immediate effect of sustaining investor sentiment; this has also recently boosted India's equity indices and the rupee. 

"Moody's also considers that the completion of the election will allow stalled policies relating to the corporate and infrastructure sectors to resume, a credit positive for the country's corporates," said Vikas Halan, a Moody's Vice President and Senior Credit Officer. 

"Moody's notes that India raised diesel prices immediately after the voting, the first such move since the previous government halted regular price increases in March, and we expect further price hikes in the months ahead," said Halan. 

Such price rises will be credit positive for oil marketing companies as they will reduce spending on fuel subsidies and lower these companies' borrowing requirements. 

Moody's also expects that the new BJP-led government will increase natural gas prices, which would benefit upstream oil and gas companies and provide greater long term incentives for investment. Gas prices were originally scheduled to almost double in April, but the previous government put that increase on hold because of the elections. This delay has meant that India's upstream companies have been losing large amounts of revenue, and a timely increase in gas prices would therefore cushion revenues and help revive interest in offshore exploration. 

"A strong majority government would also increase the likelihood of structural reform in India's ailing power sector. Closer co-ordination between the central and state governments on clearances for mega projects and land use, two proposals outlined in the BJP's manifesto, would address investment delays," said Halan. 

"On the other hand, as indicated, the immediate effect of the new government on the credit profile of the banks will be limited with the key issue facing the sector being the high level of impaired loans in their corporate portfolios," said Srikanth Vadlamani, a Moody's Vice President and Senior Analyst. 

"Moving into 2015 and beyond, we see more significant scope for policy to positively affect the credit profiles of public-sector banks. In the interim budget for the fiscal year ending 31 March 2015, the previous government budgeted capital infusions totalling INR110 billion, lower than year-earlier levels," said Vadlamani. 

"In this environment, Moody's believes that there is a reasonable chance that the BJP-led government will infuse a higher amount of capital this year than what had been allocated in this interim budget, which would be a credit positive for public-sector banks," added Vadlamani.

Blog Archive

____________________________________________________________________________________________

Disclaimer - All investments in Mutual Funds and securities are subject to market risks and uncertainty of dividend distributions and the NAV of schemes may go up or down depending upon factors and forces affecting securities markets generally. The past performance of the schemes is not necessarily indicative of the future performance and may not necessarily provide a basis for comparison with other investments. Investors are advised to go through the respective offer documents before making any investment decisions. Prospective client(s) are advised to go through all comparable products in offer before taking any investment decisions. Mutual Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the fund will be achieved. Information gathered & material used in this document is believed to be from reliable sources. Decisions based on the information provided on this newsletter/document are for your own account and risk.


In the preparation of the material contained in this document, Varun Vaid has used information that is publicly available, including information developed in-house. Some of the material used in the document may have been obtained from members/persons other than the Varun Vaid and which may have been made available to Varun Vaid. Information gathered & material used in this document is believed to be from reliable sources. Varun Vaid however does not warrant the accuracy, reasonableness and/or completeness of any information. For data reference to any third party in this material no such party will assume any liability for the same. Varun Vaid does not in any way through this material solicit any offer for purchase, sale or any financial transaction/commodities/products of any financial instrument dealt in this material. All recipients of this material should before dealing and or transacting in any of the products referred to in this material make their own investigation, seek appropriate professional advice.


Varun Vaid, shall not liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this material in any manner. The recipient alone shall be fully responsible/are liable for any decision taken on the basis of this material. All recipients of this material should before dealing and/or transacting in any of the products referred to in this material make their own investigation, seek appropriate professional advice. The investments discussed in this material may not be suitable for all investors. Any person subscribing to or investigating in any product/financial instruments should do soon the basis of and after verifying the terms attached to such product/financial instrument. Financial products and instruments are subject to market risks and yields may fluctuate depending on various factors affecting capital/debt markets. Please note that past performance of the financial products and instruments does not necessarily indicate the future prospects and performance there of. Such past performance may or may not be sustained in future. Varun Vaid, including persons involved in the preparation or issuance of this material may; (a) from time to time, have long or short positions in, and buy or sell the securities mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation in the financial instruments/products/commodities discussed here in or act as advisor or lender / borrower in respect of such securities/financial instruments/products/commodities or have other potential conflict of interest with respect to any recommendation and related information and opinions. The said person may have acted upon and/or in a manner contradictory with the information contained here. No part of this material may be duplicated in whole or in part in any form and or redistributed without the prior written consent of Varun Vaid. This material is strictly confidential to the recipient and should not be reproduced or disseminated to anyone else.


Varun Vaid also does not take any responsibility for the contents of the advertisements published. Readers are advised to verify the contents on their own before acting there upon.


Published Credits goes to following sources & all the mentioned sources as footer below the published material- Bloomberg, Valueresearch Online, Capital Market, Navindia, Franklin Templeton, Kitco, SBI AMC, LIC AMC, JM Financial AMC, HDFC AMC, The Hindu, Business Line, Personal FN, Economic Times, Reuters, Outlook Money, Business Standard, Times of India etc.