Moody's rallies behind Narendra Modi surge

The landslide victory by the Narendra Modi- led Bharatiya Janata Party (BJP) in the Lok Sabha elections is credit positive for India's sovereign profile as well as the country's corporate sector, according to Moody's Investors Service report released on Monday.

Moody's believes that the new government's strong mandate 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 will have an immediate effect on sustaining investor sentiment; this has also recently boosted India's equity indices and the rupee, the report states.

"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, vice- president at Moody's.

"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.

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 due to 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 Rs 11,000 crore , lower than yearearlier levels," said Vadlamani.