The Indian stock market is likely to witness heavy bouts of volatility when it resumes trading on Monday due to downgrading of sovereign credit rating of the US by Standard & Poor’s, experts said on Saturday.
“Markets are likely to see heavy volatility with a negative bias, but there would not be a crash kind of a situation,” said Ashika Stock Brokers Research Head Mr Paras Bothra.
Edelweiss Securities in a research note said: “Overall, risk assets, specially emerging market equities will continue to face painful bouts of volatility owing to the debt impasse in Europe and US. This will, in all probability, affect market sentiments in India as well.”
Rating agency Standard & Poor’s downgraded the US government’s ‘AAA’ sovereign credit rating - a development that will lead to investors losing confidence in the American economy.
“Market will be under pressure and there will be a negative bias in the short-term but it will not crash when it opens for trading on Monday,” WellIndia Group Managing Director Mr Rajiv Agarwal also said.
Giving a different view, some experts said that the situation might prove to be a boon for Indian markets in the long-term, as India is fundamentally stronger among its peers and attracts more international inward financial flows. Besides, the strengthening of the Indian currency against the dollar will help act as a trigger.
“In case there is any nervousness in the market, as happened in 2004 and 2008, it will be another opportunity for all classes of investors to make aggressive buying,” Geojit BNP Paribas Financial Services MD Mr C J George said.
“Whether this is a temporary panic sell-off or a deeper correction is anybody’s guess,” IIFL’s Head of research Mr Amar Ambani said.
“Amid the worldwide bloodbath, there is reason to rejoice; the steep fall in crude oil prices lately is good for countries like India,” he added.
Stock market across the world had declined sharply yesterday on fears of recession in the US and debt crisis in some euro-zone nations. The Bombay Stock Exchange 30-share Sensex yesterday tanked more than 700 points before closing at 17,305.87 - down 387.31 points or 2.19 per cent.
The US stock markets closed on a flat note on Friday, after it witnessed wild swings, trading in a range of 400 points during the day.
In a bid to calm the market, Finance Minister Mr Pranab Mukherjee said: “This is nothing domestic. It is substantially due to external factors. Stock markets fell due to global factors like weak recovery in US and spread of debt burden in euro zone. The current volatility is temporary.”