Moody’s upgrades TCS, RIL, Infosys above the sovereign

Global rating agency Moody's Friday upgraded index heavyweight stocks Tata Consultancy Services (TCS), Infosys and Reliance Industries above India’s sovereign rating, citing their strong financials and significant global earnings.

While it rated TCS and Infosys two notches above India's Baa3 rating, Mukesh Ambani-led Reliance was only one notch higher than India's sovereign rating.

The move comes after last month Moody's Investors Service had downgraded India's sovereign rating by one notch to Baa3, which is one notch above ‘Junk’.

While downgrading India’s rating, it had said there would be challenges in the implementation of policies to mitigate risks of a sustained period of low growth, deteriorating fiscal position, and stress in the financial sector.

While downgrading India’s sovereign rating, Moody’s had also lowered TCS, Infosys and Reliance’s ratings. While TCS rating was cut to Baa1 negative from A3 negative, Infosys was downgraded to Baa1 negative from A3 negative. The rating agency had also warned that Infosys' rating could be further downgraded if it undertook material debt-funded acquisitions or increased returns to shareholders that significantly undermined its credit profile, or its operating performance deteriorated significantly.

It said large scale, diversified business and balanced funding mix allow Reliance to be rated one notch above the sovereign. Still, Reliance's digital services and retail businesses have increased its links to India's economy. Thus it does not meet the criteria to be rated two notches above the sovereign even if its credit metrics warrant such an assessment.

Two other companies' ratings were capped at the same level as the sovereign rating. Though Oil and Natural Gas Corporation's and Petronet LNG's credit quality were stronger than the sovereign's, their ratings were capped at Baa3 because of their strong links with the government or other government-owned entities

Moody's said ratings of 9 of the 11 investment-grade companies will likely be downgraded by one notch if the sovereign rating falls to Ba1. Only UPL and Genpact are likely to maintain their current Baa3 ratings.

TCS, Infosys and Reliance will continue to retain their investment-grade status even at lower ratings. But the six government-owned or government-linked companies will lose their investment-grade ratings.