Stocks rally as S&P Global upgrades India’s sovereign rating after 18 years

Benchmark indices Sensex and Nifty surged on Monday, buoyed by S&P upgrading India’s sovereign credit rating as well as the government’s plans for big bang reforms in the GST regime later this year.

S&P Global Ratings last week lifted India’s long-term sovereign rating to BBB from BBB minus and the short-term rating to A-2 from A-3 with a Stable outlook, its first upgrade for India since 2007.

“The upgrade of India reflects its buoyant economic growth against the backdrop of an enhanced monetary policy environment that anchors inflationary expectations,” S&P Global Ratings said in its release.

S&P cited real GDP growth averaging 8.8% over FY22–24, the fastest in Asia-Pacific, and forecast growth of about 6.8% annually over the next three years, which it said would help moderate the government’s debt ratio even with wide fiscal deficits.

It also raised India’s transfer and convertibility assessment to A- from BBB+, underlining stronger external resilience .

New Delhi called the upgrade “a significant affirmation of India’s economic trajectory and prudent fiscal management,” and pointed out that it follows S&P’s May 2024 move to revise the sovereign outlook to Positive .

In its summary of S&P’s rationale, the finance ministry highlighted “buoyant and dynamic economic growth,” “credible inflation management,” and sustained fiscal consolidation, while noting S&P’s view that the impact of recent US tariffs would be limited given India’s domestic-demand-led economy .

The macro backdrop has turned friendlier on prices. Headline Consumer Price Index-based (CPI) inflation eased to 1.55% year-on-year in July from 2.10% in June, the lowest reading since 2017.

With inflation sliding through 2025, the RBI has delivered 100 basis points of rate cuts since February and held the policy repo at 5.50% at its 6 August review.

Markets read the upgrade as a tailwind for funding costs and flows. India’s 10-year bond yield fell on Friday, while the rupee firmed modestly versus the dollar, as investors weighed prospects of cheaper sovereign borrowing trickling down to state-run and private issuers.

S&P also spelled out the path ahead: “Further upgrades are possible if fiscal deficits narrow significantly,” bringing the net change in general government debt below 6% of GDP on a sustained basis, while a weakening of the consolidation drive or a structural growth slowdown would pose risks .

Government commentary around the move reiterated its multi-year push on infrastructure and policy stability.

S&P said the combination of high public investment, anchored inflation expectations, and deepening domestic capital markets supports the Stable outlook.