India Inc Sees Opportunity in Overseas Borrowing Amid Sovereign Upgrade

Indian companies, including Credila, Muthoot Finance, and Hero FinCorp, are rushing to tap overseas markets after India's sovereign rating upgrade to BBB from BBB-. They are seeking over $2 billion in fundraising, with the firms citing resilient growth and fiscal consolidation. The upgrade is expected to narrow funding spread with peers and lower borrowing costs. However, risks remain, and the impact of US tariffs and Federal Reserve policy will be watched in the future.

Indian companies, including Credila, Muthoot Finance, and Hero FinCorp, are swiftly turning to overseas markets to secure funding following India's sovereign rating upgrade from 'BBB-' to 'BBB'. The firms are seeking over $2 billion in fundraising, citing resilient growth and fiscal consolidation as key drivers. The upgrade is expected to narrow funding spreads with peers and lower borrowing costs, providing a significant boost to their financial prospects.

The rating upgrade by Fitch Ratings [1] reflects India's robust growth and solid external finances, with the agency forecasting GDP growth of 6.5% for the fiscal year ending March 2026. This upgrade is the first in over 18 years and is expected to enhance India's global financial standing. S&P Global Ratings also upgraded India's rating to 'BBB' with a stable outlook, citing improvements in fiscal credibility and growth momentum [2].

Despite the positive outlook, risks remain. The potential impact of US tariffs and Federal Reserve policy on the economy is a concern. Fitch Ratings has affirmed India's long-term foreign-currency issuer default rating at 'BBB-' with a stable outlook, noting that while upcoming US tariffs pose a moderate downside risk, the situation remains uncertain [2]. The Trump administration plans to impose a 50% tariff on Indian goods starting August 27, which could dampen business sentiment and investment.

However, the proposed goods and services tax (GST) reforms, if adopted, could support consumption and offset some of these growth risks. The government has proposed a 2-tier rate structure of 5% and 18% for 'merit' and 'standard' goods and services, and a 40% rate for about 5-7 goods [1].

Indian firms are increasingly turning to the bond market to finance acquisitions, with mutual funds driving demand. Corporate bond sales have reached a record high this year, exceeding previous figures by over 15% [3]. This trend is expected to continue, driven by mutual funds flush with capital and seeking to invest in the growing Indian market.

While the rating upgrade presents opportunities for Indian companies, the challenges posed by US tariffs and Federal Reserve policy cannot be ignored. The ability of Indian firms to navigate these risks will be critical in determining the long-term impact of the rating upgrade on their financial performance.

References:
[1] https://www.thehindu.com/business/Economy/fitch-affirms-indias-sovereign-rating-at-bbb-on-robust-growth-solid-external-finances/article69974489.ece
[2] https://economictimes.indiatimes.com/news/economy/indicators/fitch-affirms-india-at-bbb-outlook-stable-says-tariff-impact-on-gdp-will-be-modest/articleshow/123498142.cms
[3] https://economictimes.indiatimes.com/markets/bonds/indian-firms-tap-bond-market-for-acquisitions-on-mutual-fund-demand/articleshow/123561218.cms