Monday, October 2, 2023

Impact of US ratings: How quickly will the market recover?

The impact of America’s rating downgrade by Fitch Ratings continued on global equity markets for the second day in a row.
Most Asian markets such as Hong Kong, Shanghai and Japan lost about one percent on Thursday.

In India, S&P BSE Sensex and Nifty also remained weak. Morgan Stanley upgraded India to overweight, but that helped stem the decline.

At the beginning of 2011, America’s rating had fallen

Meanwhile, the US last experienced a ratings downgrade by a major agency almost a decade ago, in 2011, when Standard & Poor’s (S&P) downgraded its rating from AAA to AA+.

Statistics show that both markets took more than a month to regain their footing. A month after the downgrade, the S&P 500, the Dow Jones Industrial Average (DJIA) and the Nasdaq had lost 2.8 percent, 2.7 percent and 2.3 percent, respectively. This information comes from exchange data.

During this period, S&P BSE Sensex and Nifty-50 had lost 3.4 percent and 3.7 percent, respectively. However, the Nifty Bank index fell 7.2 percent during this period.

How long will recovery take after downgrade?

In such a situation, the question arises as to how long it will take for the global stock markets, particularly the US and India, to recover from the recent downgrade by Fitch or whether it will be a one-time affair given the economic pressures increases. Additionally, will the temporary increases offset selling pressure?

Analysts said that stock markets were affected by unexpected events and there was an immediate reaction to them. When market valuations are high, there is intense selling.

The key question is whether this will impact the fundamentals driving the uptrend in global markets, said VK Vijayakumar, chief investment strategist at Geojit Financial Services. The answer is no. The narrative of a soft landing for the US economy that is driving the current global boom is not only intact, but also growing stronger.

GDP growth in America is strong and inflation is falling. 80 percent of American companies reported better than expected quarterly results. Fitch’s downgrade cannot change the economic situation. The sentimental impact of a rating downgrade may soon fade.

According to Nischal Maheshwari, CEO (Institutional Equities) of Centrum Broking, Fitch’s US rating downgrade is largely symbolic and the reasons given by the agency are already in the public domain.

He said the decline in global stock markets, particularly in America and India, came after a good rally in the last two-three months. This development merely triggered another round of profit-taking. From here, the market could fall another 200-300 points and then reverse. Most growth standards in America are better. If the upcoming economic data is good, the market could soon make a turnaround and move forward.

Nation World News Desk
Nation World News Desk
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