Rating cuts in EU not to hit Indian markets hard

Rating downgrades of France and eight other Euro zone countries by global rating firm Standard & Poor's (S&P) late Friday is unlikely to affect the Indian market much on Monday, when it opens after the weekend. However, the market may remain 'cautious' till the wholesale price index (WPI) inflation figures for December are out.

"Taking a cue from the Euro zone downgrades the market is expected to open a little soft on Monday but is unlikely to have a big impact," said Avinash Gupta, vice-president, Globe Capital. "To a great degree, the downgrades were anticipated. So, the reaction in the US market was negative only initially, but recovered on Friday. It was also boosted by rising consumer confidence there," he added.

S&P downgraded the credit ratings of nine Euro zone countries, stripping France and Austria of their coveted triple-A (AAA or highest credit worthiness) status. Ratings of Italy, Spain, Portugal and Cyprus were cut by two notches and the standings of France, Austria, Malta, Slovakia and Slovenia by one notch each. However, it did not change the status of Germany, which has a 'AAA' rating.

The rating actions were driven by an assessment that "the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the euro zone," S&P said. D.K. Aggarwal, chairman and managing director of Sanlam Investments & Advisors said, "Market will open weak on Monday. The positive sentiment of the last two weeks may vanish. The S&P action could lead to risk aversion among global investors, too."

In India, BSE Sensex was up 4.43 per cent since the advent of the new year. The figure for Nifty of NSE is 5.23 per cent. The growth in industrial production in November, 2011 bounced back to 5.9 per cent from a negative 4.7 per cent for the previous month, boosting sentiment.

"The market may not fall steeply, but may lose a part of the gains made so far. However, if there is any other negative that crops up, then it may fall further," Aggarwal added.

Courtesy: Mail Today