Global ratings agency Standard & Poor's has raised India's sovereign credit rating to investment grade after a gap of nearly 16 years.

Analysts said the move would hugely expand the overseas investor base for Indian loan and debt issues.

S&P said it had raised sovereign credit ratings on India to 'BBB-/A-3' with a stable outlook from 'BB+/B,' which reflected the country's strong economic prospects and external balance sheet, as also its deep capital market, which supported a weak but improving fiscal position.

The ratings reflected the growing strength of India's macro-economic stability, Finance Minister P Chidambaram told media persons on Tuesday.

S&P is the third global ratings agency to upgrade India. Fitch Ratings upgraded India to investment grade in August 2006 and Moody's in January 2004.

S&P had downgraded India to sub-investment grade in March 1991, when the country faced a foreign exchange crisis. Now, the country's foreign-exchange reserves of $178.12 billion are more than 16 times the short-term debt and five times the gross financing requirements, providing a buffer from changes in external and domestic investor confidence.

The revision in rating to investment grade will enable a large number of investors with huge investible funds to take an India exposure. Many overseas pension and insurance funds have kept away from investing in issues by Indian companies because of the country's sub-investment grade ratings. Indian companies and banks raised $26.74 billion through loans and debt issues overseas in 2006.

"This is a momentous occasion," said Madan Menon, co-CEO at Barclays India, which has helped a large number of companies raise funds overseas in the last few years.

Describing the upgrade as "adding sheen to India's growth story," Siddhartha Roy, chief economist of the Tata Group, said the cost of overseas borrowing by Indian companies would come down marginally.

Chanda Kochhar, joint managing director, ICICI Bank, said the upgrade would make some difference in terms of pricing and attracting an additional pool of investors but warned that ratings on India would be pressured by the country's weak fiscal profile.

However, Standard & Poor's credit analyst Ping Chew said, "Gradual reforms and consistent monetary and fiscal policy stances have also sustained macroeconomic stability."

This has led to strong growth prospects and attracted foreign and non-resident Indian capital. India's strong institutions have also provided for relative stability in policy, politics, and business environments against volatility usually associated with lower income levels."