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S&P's US downgrade will affect the Indian stock market, leading to irrational, illogical and knee-jerk reactions on Monday, said market-men.
“The downgrade will add to the negative sentiment, if stability funds are not in place then markets will have a knee-jerk reaction and then stabilize,” said Mr Aneesh Srivastava, Chief Investment Officer, IDBI Federal life Insurance.
The initial public offerings of L&T Finance Holdings and Tree House Education could be affected, said market experts. “The market sentiment will be down though discounting has already happened. It might trigger a sell-off in the commodity markets which will benefit India. Some FII's might sell-off but I don't think there would a major sell-off,” said Mr Saibal Ghosh, CIO, Aegon Religare Life Insurance.
According to experts, even though the US has not changed the risk weights of its treasuries, the downgrade would push the yields of US treasuries up.
“It is a global economic downgrade which will have a direct and an indirect impact on the Indian equity markets. We will have to wait and see. However, over a long term India will stand out as the best destination for a long-term investor,” Dr Nirakar Pradhan, Chief Investment Officer, Future Generali India life Insurance
Market experts were also critical of the US raising its debt ceiling.
“Ever heard of a bank increasing the credit limit of a credit card customer after the customer says he is about to default on his earlier outstanding balance,” said Mr Arun Kejriwal, Founder KRIS Research. “This is exactly what the US did and the whole world heaved a sigh of relief as most countries have invested heavily in US Treasuries, considered the “safest” haven for investment.”
China is the largest holder of US Treasuries worth $1.16 trillion. Next in the pecking order comes Japan with $ 912.4 billion.
Experts said that China would be the worst affected when markets open next week. Indian stocks on Monday are expected to mirror the East Asian markets as the US market opens only after India has closed. “It remains to be seen what will happen to the currency, commodity, bond and equity markets globally on Monday,” said Mr Kejriwal.
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