Global rating agency Standard & Poor's (S&P) has revised India's long-term credit outlook to 'stable' from 'negative', against the backdrop of improving investor sentiment.
The rating agency has also affirmed its 'BBB-' long-term and 'A-3' short-term unsolicited sovereign credit ratings on India, and also affirmed its transfer and convertibility assessment of 'BBB+'.
S&P had lowered the outlook to negative in April 2012 on diminishing growth prospects.
The rating agency said its outlook revision reflects its view that India's improved political setting offers a conducive environment for reforms, which could boost growth prospects and improve fiscal management.
“The stable outlook for the next 24 months reflects our view that the new government has both the willingness and capacity to implement reforms necessary to restore some of India's lost growth potential, consolidate its fiscal accounts, and permit the Reserve Bank of India to carry out effective monetary policy,” it said.
S&P added that it could raise the rating if the economy reverts to a real per capita GDP trend growth of 5.5 per cent per year and fiscal, external, or inflation metrics improve. On the flip side, it may lower the rating if the government's structural reform agenda stalls such that economic growth does not accelerate or fiscal and debt ratios fail to improve.
The foreign investor confidence has improved following the Narendra Modi-led alliance’s victory in Lok Sabha elections in May which pledged to revive investments and boost economic growth.
"We believe the current administration will remedy, to varying degrees, the growth impediments - policy paralysis, energy supply bottlenecks and administrative obstacles,” it added.
As per S&P, positive factors for its credit rating included the Asia's third- largest economy's external position and its improving current account balance.
“India's current account has improved in recent years after restrictions on gold imports and slower domestic investment demand,” it added.
The 30-stock benchmark index Sensex, which was trading weak during the day, rose over 300 points after the S&P decision and ended the day up 0.6 per cent over the previous closing, on Friday.
(Edited by Joby Puthuparampil Johnson)