Analysts said the upgrade would lead to higher capital inflows, strengthening the rupee, and ease India Inc's access to overseas capital at lower rates.
The rupee surged as much as 1.1 per cent on Friday after global rating agency Moody's Investors Service upgraded India's local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook to "stable" from "positive".
In the wake of India's rating being upgraded by global credit rating agency Moody, Finance Minister Arun Jaitley said it is "encouraging to gain worldwide recognition and not something that's happening in isolation".
Finance Minister Arun Jaitley called the upgrade "a belated recognition of all the positive steps which have been taken in India in the last few years".
Moody's Investors Service today upgraded India's local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to stable from positive. "Many who had doubts in their minds about India's reform process would now seriously introspect on their positions itself", he said.
Meanwhile the Sensex closed 236 points higher after the Moody's upgrade, while the NSE index rose almost 70 points. "A clear recognition of economic & institutional reforms; well paced shift towards formalisation of the economy; improvement in business climate;positive growth outlook".
"Moody's upgrading India's Ratings is a reflection of India growth story and sound economic principles for a #NewIndia".
Moody's expects GDP growth to moderate to 6.7 per cent in the fiscal year ending in March 2018. Rajnish Kumar, the chairman of the country's largest lender State Bank of India, said that over time, this would reduce the borrowing costs of the government and financial institutions and result in increased investor confidence in India's growth and reform story. S&P and Fitch Ratings have India a rung above junk.
"Longer term, India's growth potential is significantly higher than most other Baa-rated sovereigns", the agency said.
As such, an upgrade of the sovereign rating also drove an upgrade of the bank's BCA and ratings.