The Fiscal Responsibility Act, or the bill to raise the debt limit and cap government spending in the US was passed by a wide margin late on Wednesday. The bill will now move to the Senate for a vote, just days before Monday's default deadline
The debt ceiling is the maximum amount of money that the United States can borrow cumulatively by issuing bonds. The ceiling was created under the Second Liberty Bond Act of 1917, and is also known as the debt limit or statutory debt limit
Suppose the US government's national debt levels bump up against the debt ceiling, in that case, the Treasury Department must resort to other extraordinary measures to pay government obligations and expenditures until the ceiling is raised again
If the debt ceiling is not raised or suspended for two years, the US government will have to cover its expenses with only its revenues. This will be troublesome as the US government will have a deficit of about US$ 900 billion this year, according to reports. Even so, US Congress must vote to raise or suspend the ceiling, so it can borrow more to pay its bills
If approved in Senate, the bill to raise the debt limit would allow the federal government to borrow money until after the next presidential election in November 2024. The debt ceiling has been raised or suspended numerous times over the years to avoid the worst-case scenario: a default by the US government on its debt
The recent passage of the US debt ceiling bill by lawmakers is not expected to have a significant impact on the Indian equity market, according to Sunil Damania, Chief Investment Officer, MarketsMojo. "The market anticipated that rationality would prevail, as it did in 2011, and a consensus would be reached regarding the US debt ceiling limit. Therefore, life will go on as usual," he said
According to Sunil Damania, the market will closely monitor the actions of the Reserve Bank of India (RBI) in its upcoming monetary policy announcement on June 8, as well as the Federal Reserve's decision on June 14. "Any potential interest rate hikes could unsettle market sentiment, given the fragile state of global economic recovery and the added pressure from China on global growth," he said, adding that markets will also keep a close eye on the uncertainties surrounding India's southwest monsoon
Santosh Meena, Head of Research, Swastika Investmart Ltd believes that the recent deal on the US debt ceiling had already been anticipated and taken into account by the market, resulting in the absence of a significant downturn and a rally despite the prevailing chaos surrounding the issue
"There has been a stream of positive news, including robust GDP data, the resolution of the US debt ceiling, a decline in commodity prices, and increased Foreign Institutional Investor (FII) activity. While these factors contribute to an overall bullish outlook for our market, it is important to consider the possibility of profit booking in the near term," said Santosh Meena of Swastika Investmart
According to Santosh Meena, with many aspects already factored into current market prices, profit booking could occur as investors look to capitalize on gains. "However, this potential pullback in the market presents an excellent opportunity for investors to buy into the market at favorable prices," he said
According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, US House of Representatives passing the US debt ceiling bill indicating that the debt impasse will be resolved is among the many positives going in favor of the ongoing rally in the domestic market. Another factor is the FPI investment in India continuing with big investments during the last 3 days pushing the total investment in May to an impressive Rs 43,838 crore
The third reason for positivity in domestic markets is the Q4FY23 and full-year FY23 GDP growth figures coming at 6.1% and 7.2% impressively beating the market expectations indicating that the FPI optimism is justified. "The 4% decline in crude is another macro positive. These positives, particularly the GDP numbers, can impart resilience to the market. The only concern is the rising valuations which might nudge DIIs to sell thereby neutralising the FPI buying," Geojit's Vijaykumar said
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