Tag Archives: Standard & Poor

Standard & Poor threat to junk India spooks investors

An unexpected warning by global ratings major S&P on the possibility of India losing its investment grade sovereign rating spooked investor sentiments on Monday, a day that started on a strong note for markets globally after the European leaders agreed to a $125-billion bailout for the Spanish banking system.

The S&P warning also led the rupee to weaken against the dollar by 27 paise to 55.73, while the sensex reversed its five-session winning run to end 51 points in the red at 16,668. The slide in thestock market left investors poorer by Rs 21,000 crore with BSE’s market capitalization now at Rs 58.9 lakh crore.

The warning that India may be relegated to a junk bond status jolted Dalal Street investors and led to a 225-point fall in the sensex from its intra-day high. However, institutional players who deal with FIIs, the most influential of the investor groups on the Street, feel the warning could turn out to be positive for the market and the country. “This is a warning to the government to pursue its economic agenda which will lead to faster GDP growth,” said Dharmesh Mehta, MD (institutional equity), Enam Securities. “After reading the logic behind S&P’s warning, I see this as a positive development for the economy and the market. This would push the government to move faster on reforms, with RBI helping through rate cuts,” Mehta said.

Several other top broking house officials and dealers echoed the same view and said for the current week and the next, there are two things that matter the most. First, the Greek elections on Sunday, which is being equated to a referendum to see if its people are willing to be in the Eurozone. And the other one is the monetary policy decision by RBI on Monday.

Expectations are that Greece would leave the currency block, which could be disastrous for India as its throws the market into uncharted territory, while back home, given low inflation and lower crude oil prices, RBI would cut rates further, a positive for the market.

Usually, a cut in ratings by a global major leads to outflow of FII money both from the stocks and the bond markets.

On Monday, however, FIIs in the stock market were still net buyers at Rs 130 crore while domestic funds were net sellers at Rs 215 crore.

 [This article was originally published on Times of India, TNN | Jun 12, 2012, 05.00AM IST]