Moody’s ups outlook for banks, companies but retains negative view on this PSU

by 5paisa Research Team 06/10/2021

In some welcome news for India Inc, global ratings firm Moody’s has upped the rating outlook for nine Indian banks and nearly two dozen companies from “negative” to “stable”.

The banks that have been given an upgrade are Axis Bank, Bank of Baroda, Canara Bank, HDFC Bank, ICICI Bank, Punjab National Bank, Export-Import Bank of India, State Bank of India (SBI) and Union Bank of India.

Apart from banks, Moody’s also changed its outlook to stable for several non-bank lenders. These include Housing and Urban Development Corp, Indian Railway Finance Corporation, Indian Renewable Energy Developement Agency Ltd, Power Finance Corporation, REC Ltd and Hero FinCorp Ltd.

Other companies whose outlook has been changed include Tata Consultancy Services, Infosys Ltd, Reliance Industries Ltd, ONGC Ltd, Petronet LNG Ltd, Ultratech Cement, Oil India Ltd, Indian Oil and Hindustan Petroleum Corp Ltd.

Apart from these, at least 10 infrastructure majors have also seen an upgrade in their outlook. These include NTPC Ltd, National Highways Authority of India, Power Grid Corp of India Ltd, Gail (India) Ltd, Azure Power and several Adani group companies including Adani Green Energy, Adani Transmission, Adani Ports and Special Economic Zones, Adani Electricity Mumbai and Adani International Container Terminal. 

What prompted Moody’s to take such a step?

The upgrade follows the agency upping the country’s sovereign credit rating outlook on Tuesday from “negative” to “stable”. 

“The decision to change the outlook to stable reflects Moody's view that the downside risks from negative feedback between the real economy and financial system are receding,” the ratings firm said. 

Simply put, Moody’s thinks that an economic recovery is on the cards, and that India could be coming out of the shackles of successive lockdowns that had seen the country register its worst macroeconomic numbers and a full-blown recession for the first time in four decades. 

Has Moody’s changed India's actual rating?

No, it hasn’t. It has kept India’s sovereign rating at Baa3. This is the lowest investment grade and is just one notch above junk.

While Moody’s hasn’t changed the rating itself, the fact that it revised the outlook to stable means the risk of India’s rating falling to junk has receded. The government, meanwhile, has been pushing rating firms to upgrade India’s sovereign rating.

Are there any companies whose outlook remains negative?

Yes, there is at least one. Moody’s says its outlook on state-run Bharat Petroleum Corporation Ltd remains negative. This decision reflects “the uncertainty around its ownership, capital structure, liquidity and management control given the ongoing process by the government to divest its entire stake in the company”.

The government has selected the state-run refiner for privatisation and aims to sell the company to a private-sector buyer in the current financial year. The sale, in fact, could lead to a downgrade in BPCL’s rating.

“Given the negative outlook, a rating upgrade is unlikely. A change in outlook to stable will require the conclusion of the sale of government stake in the company such that the support incorporated in BPCL's rating is maintained,” Moody’s said.

“On the other hand, the rating will be downgraded if the government sells its entire stake resulting in elimination of the support incorporated in the rating. A sale of government’s entire stake in BPCL to a buyer with weak credit quality or significant credit negative changes to BPCL's post-acquisition capital structure or financial profile could also put downward pressure on the rating,” Moody’s added.

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