December 8, 2023

On August 2, equity indices around the world experienced a sharp decline as rating agency Fitch unexpectedly downgraded the US sovereign credit rating from AAA to AA+. The move spooked investors, triggering a global market rout. Major Indian indices were not spared, with the BSE Sensex plunging 1,000 points before recovering slightly to end 1.02 percent lower, and the NSE Nifty finishing 1.05 percent lower. Domestic investors lost a significant Rs 3.56 lakh crore in market capitalization.

Impact on Indian Stocks

The downgrade’s repercussions were felt in the Indian stock market, with several heavyweights witnessing a decline in market capitalization. Companies like Reliance Industries, HDFC Bank, Tata Motors, Bajaj Finserv, and Tata Steel saw substantial value erosion. However, a few counters, including Nestle India, HUL, Asian Paints, and Tech Mahindra, bucked the trend and managed to perform positively amid the chaos.

Reasons Behind Fitch’s Downgrade

Fitch attributed the downgrade to the expected fiscal deterioration in the US over the next three years. The downgrade caused a spike in US yields on the benchmark 10-year bond, reaching over 4 percent. US Treasury Secretary Janet Yellen swiftly responded to the downgrade, dismissing it as “arbitrary” and “outdated.”

Analysts’ Views on the Market Reaction

Market analysts opined that the selling and downturn were largely due to a panic reaction to Fitch’s credit rating cut. While the knee-jerk response was negative for global markets, many experts believe that the impact will be short-lived. They emphasized that the market was already aware of the challenges the US economy faced and that the downgrade didn’t alter the narrative of a soft landing for the US economy.

Looking Ahead

Despite the sharp correction, analysts view the market correction as healthy, as it prevents complacency and keeps investors vigilant about their positions and investments. Over the past month, Indian markets have delivered decent returns, making the current decline a reminder for investors to stay cautious.

Fitch Ratings’ unexpected downgrade of the US sovereign credit rating sent shockwaves across global markets, causing panic among investors. The Indian stock market was not immune to the downturn, witnessing significant value erosion in many heavyweight stocks. However, analysts remain optimistic that the knee-jerk reaction will be short-lived and that the market will eventually stabilize. As the situation unfolds, market participants are reminded to stay vigilant and cautious amid ongoing uncertainty.

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