by Andrew L Dcunha
Mumbai, Aug 8: Indian Benchmark Index BSE Sensex tumbled and touched its lowest level since June 2010, as downgrade of U.S. credit ratings by Standard & Poor's triggered investor concerns about the health of the world's largest economy and the outlook for global growth.
S&P downgraded the US credit rating for the first time since 1941, lowering it one notch to AA+ while keeping the outlook at ‘negative.
There are also mounting fears that the Eurozone's sovereign debt crisis will spread to Spain and Italy following bailouts of Greece, Ireland and Portugal. Adding salt to the market wounds Standard & Poor's today cautioned that it could lower the sovereign ratings of countries like India, Japan and Malaysia,
Investors rushed to sell stocks in panic, pulling down Sensex by 316 points or 1.82% at 16990, below the psychological mark of 17K. After an over 500-point fall within minutes of opening today, the stock market recovered half of its losses from a low of 16,759 as some investors saw buying opportunities. Market struggled hard to sustain the recovery came from some positive news coming from the European Central Bank (ECB) and cues from European market. However, European markets resumed their slump on 200 points fall on Dow Jones futures adding pressure on Indian market. BSE reality was worst hit by 4.46% followed by IT by 4.33% .
Asian indices closed in the red today while European indices were also bleeding in opening trade. Nikkei 225 shed 2.18%, Hang Send fell 2.17%, KOSPI sank 3.82%
The rupee was trading at Rs 45 to the dollar at the time of writing.
The government today indicated it may cut down the Rs 40,000 crore disinvestment target for the current fiscal in view of the recent global uncertainties and volatile capital markets.
Gold Futures and OIL
Gold surged to record high by adding Rs 536 to Rs 25,978 per 10 grams in futures trading today on buying by speculators, driven by a strong overseas trend, where investors sought safe haven following downgrading of the US credit rating.
The rising of gold to an all-time high of over $1,700 an ounce in the Asian region as equity markets tumbled worldwide, encouraging investors to park their funds in bullion, traders said.
US crude , which is down 7.5% so far this year, fell $2.64 to $84.24 a barrel, after hitting a low of $83.68 earlier. Brent oil , which is up nearly 13% so far this year, slipped $2.80 to $106.57, off a low of $106.20.
Goldman Sachs upgrades Indian market
Goldman Sachs on Monday upgraded India to "market weight" from "underweight," given a likely turn in the macro cycle, lower oil prices, lower valuation, and policy reform.
"The latest move by the RBI to raise the repo rate by 50 basis points was a clear sign in our view that the central bank is vigilant in bringing down inflation expectations," Goldman said in a note.
Not a surprise – Montek
Planning Commission deputy chairman Montek Singh Ahluwalia on Monday said the markets should stabilize in the next couple of days.
“I would have expected the negative reaction in markets... (but) the markets will settle down, maybe in next couple of days,” he said. “The downgrade (of the US’ long-term sovereign rating) is not actually a surprise... the markets knew about it, the US itself recognized the factors (that led to the rating action),” he told news channel CNBC-TV18.
RBI closely monitoring the situation
Developments relating to the US economy last week have significantly increased uncertainty about its prevailing condition," the RBI said in a statement.
"The Reserve Bank is closely monitoring all key indicators and will continuously assess the impact of global developments on rupee and forex liquidity and macroeconomic stability. We will respond quickly and appropriately to the evolving situation," it added
The RBI said its immediate priority was to ensure that adequate rupee and forex liquidity is maintained in domestic markets to prevent excessive volatility in interest rates and exchange rates
Andrew L D Cunha, Managing Director, WinWin Fin Advisory Pvt. Ltd. Mangalore.
