India Inc. will benefit
However, the rating upgrade will have a very significant effect on corporate India’s activities. Indian companies raised $30 billion in debt, largely through convertible securities, between April 2004 and March 2006. Even before the rating upgrade, Indian dollar-denominated debt was finely priced at 57 basis points above six-month LIBOR. The spread over LIBOR is expected to fall further, while the rupee is expected to strengthen.
The rating upgrade reflects strong growth in India’s economy. According to the Central Statistical Organization (CSO), Indian GDP growth is expected to be 9.2% for the fiscal year 2006-2007 (April-March), topping the blistering 9% growth of 2005-2006. Estimates for 2006-2007 show manufacturing growth at 11.3% against 9% last year, while construction grew at 9.4% against 14.2%. Agriculture grew by only 2.7% against 7% in 2005-2006. Within the services sector, banking and finance has expanded by 11.1%, while trade, hotels, transport and telecommunications have grown by 13%.
The premier Indian stock exchanges are sitting pretty, as overseas stock exchanges and private equity funds line up for a stake. Deutsche Börse, Nasdaq, the London Stock Exchange and the Singapore Stock Exchange are all in the fray for a 5% stake in the Bombay Stock Exchange (BSE) prior to its IPO this May. The exchange has been valued at $800 million. Earlier, the National Stock Exchange (NSE) sold a 5% stake to the NYSE Group, General Atlantic, Goldman Sachs and Softbank Asian Infrastructure Fund. The NSE has been valued at $1.2 billion. The Indian market regulator, the Securities and Exchange Board of India (SEBI), has stipulated that a single investor cannot control more than 5% in either stock exchange.