US downgrade hits Sensex, Investors lose Rs 1lakh crore

[1]

It was a rollercoaster ride for the Sensex on Monday as it plunged nearly 500 points on opening as a knee-jerk reaction to Standard & Poor’s downgrade of America’s triple-A rating by a notch (to AA+) on Friday.

It recovered nearly 400 points intra-day on short covering and bargain buying in blue-chip stocks, but dipped again on profit booking at higher levels. Investors have lost nearly Rs 1 lakh crore.

The Sensex fell for the fourth consecutive day, losing a total of 1,119.51 points. It was among the better performers compared to its Asian peers.

The Asian markets also pared some of their losses, but the European markets were singed by the financial crisis in their backyard and lost between two and nearly five per cent, while the American markets plunged over two per cent — and the Nasdaq over three per cent — an hour after the opening bell.

This was the first trading day for Europe and the United States after the US downgrade, which is expected to raise borrowing costs by $1,100 billion for the US. The US and European traders were jittery about a recession in the US and a financial meltdown in the Eurozone.

The Italian debt crisis is yet to be tackled and the slow pace of decision-making is rattling the investing community.

The performance of the markets on Tuesday will depend on how the US markets close. The Indian fundamentals are strong and investors know this, says Ambareesh Baliga of Way2 Wealth.

The present global crisis is better for India in the long run as it will be able to source commodities, whether crude or metals, at lower prices. This would temper inflation and see a reduction in rate hikes, he said.

IT stocks fell between one to 10 per cent and were among the worst performers. Glen Serrao of Zinnov Management Consulting said: “From our perspective, the impact on the IT sector may be minimal in the short term for large companies that work on multi-year long-term engagements. The project pipeline for these companies is built in advance.”

Alex Mathews of Geojit BNP Paribas Financial Services said that below 5,116, the Nifty had support only at 5,000 but it got interim support at 5,050 and crawled back.

Even now, he said, “the sentiment hasn’t changed and the element of fear remains intact in the minds of investors, which is evident from the 53.24 per cent jump in the Nifty VIX (volatility index) in the past one week”.

The markets, he said, are “oversold ... and investors may start value picking stocks around 5,000 levels”.