The world markets, including that of India, are expected to see a knee-jerk reaction to the US losing its enviable credit rating
from Standard and Poor's (S&P
) when they open on Monday, the first trading day after the downgrade.
However, the good news is that retail investors in India, who have remained on the sidelines, will get an opportunity to invest at better valuations in the next few weeks, with a tacit assurance of reasonably good long-term returns over a couple of years. The market is expected to grapple with uncertainty for a couple of months, before beginning an upward momentum.PERSPECTIVE: What S&P US downgrade means for India
"There will be a knee-jerk reaction across the world markets. But one has to keep in mind that global rating firms like Moody's and Fitch are yet to downgrade the US," said Dinesh Thakkar, chairman and managing director (CMD), Angel Broking.
In the wake of signs of an evolving global crisis either from the US or the Euro Zone, world markets have shed a lot of value over the last one month. The Bombay Stock Exchange benchmark Sensex, on its part, fell 9.29 per cent in a month, of which 4.9 per cent was in the last week
. In 2011 till date, the index has slid 15.62 per cent from the peak of 20,509 points in end-December 2010.
But punters are still confused as to how steeply the markets would slide reacting to the downgrade.PERSPECTIVE: Indian market joins global sell-off
"Though it is a clear negative for the markets across the world, it cannot be compared to the collapse of Lehman Brothers. The latter did not affect the US dollar in any way, while the latest development will result in devaluation of the US currency," said Ambareesh Baliga, head-wealth management of Way2wealth Securities.
Veterans see some benefits accruing to the Indian market in the long term, though there are specific negatives in the short term, when lower availability of funds in developed countries would force foreign funds to unwind from emerging markets like India.
Deven Choksey, managing director of KR Choksey Shares and Securities, said, "Long-term impact of the downgrade will be positive on three counts - attractive interest rate arbitrage, currency arbitrage and attractive valuations in an economy with over 7.5 per cent growth, in a sinking world." Downgrade move worrying, says Pranab
Double-digit returns from debt funds in India would attract foreign funds as the liquidity constraints ease in due course. The same way, stronger rupee would make Indian market more attractive for foreign funds compared to dollar-denominated US market and some growth constrained emerging markets.
"FII inflows will eventually come to India, with recessionary fears haunting developed countries. We can safely expect an inflow of $15-20 billion in the current fiscal," Thakkar said.
However, it is difficult to gauge the precise domino effect of the S&P move at present, given that the US Federal Reserve (the Reserve Bank of India's US counterpart) may take some damage control measures, when it meets on Tuesday, punters feel.
US shocked after losing AAA rating first time since 1917
Export-oriented sectors like textiles and IT are expected to receive a drubbing on Monday.
However, the Indian economy being driven mostly by domestic factors is unlikely to be upset much by these global actions. But it would benefit from softening commodity prices, particularly oil.
Alex Mathews, research head of Geojit BNP Paribas Financial Services estimates global oil prices to slide to $60 per barrel in a couple of months due to global slowdown.Courtesy: Mail Today