Sensex Sheds Over 700 Points, Nifty Dips 222 Points After Fitch Downgrades US Credit Rating

Indian markets are in a bloodbath on Wednesday tracking feeble global cues. Broad-based sharp selling pressure is recorded across sectoral indices with banking, auto, capital goods, metal and oil stocks dragging. Overall, the market sentiments were dampened after Fitch downgraded US' long-term credit rating with expectations of fiscal deterioration over the next three years. This has led to a rapid spike in bond yields and the dollar index.

At the time of writing, Sensex traded at 65,758.88 down by 700.43 points or 1.05%, while Nifty 50 performed at 19,511.90 shed 221.65 points or 1.12%.

FMCG stocks were among the top gainers such as Nestle India, Asian Paints and Hindustan Unilever.

On the other hand, NTPC, Tata Motors, Tata Steel, Bajaj Finserv, Axis Bank, Bharti Airtel, SBI, Maruti Suzuki, and Kotak Bank were top underperformers down by 1.5% to 3%.

In terms of sectoral indices, Bank Nifty dipped nearly 608 points, while BSE Bankex tumbled nearly 662 points, becoming the worst hit on Wednesday.

Further, on BSE, the Auto index dived over 582 points, Capital Goods stocks slipped nearly 595 points, the Metal index dropped by 417 points, and Oil and gas plunged by 318 points.

In the broader market, the Midcap and Smallcap stocks on BSE also plummeted significantly by 433 points or 324.5 points respectively.

Talking about the impact of Fitch's US rating downgrade, Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, "The downgrade of the US credit rating by a notch is sentiment negative for global markets. The US 10-year bond yield spiking above 4% and the dollar index rising to 102 are near-term negative for emerging markets. But it is important to note that the downgrade doesn't say anything that the market doesn't know. So, the negative knee-jerk reaction will be short-lived. Globally equity markets have been rising on the US economy's soft landing narrative. The downgrade doesn't alter that."

Nevertheless, Santosh Meena, Head of Research, Swastika Investmart believes correction in markets due to the rating downgrade could provide an opportunity for some investors to take profits, leading to a possible pullback in the market.

Meena said, "Signs of exhaustion are evident at higher market levels, following a strong rally from the lows in March. Foreign Institutional Investors (FIIs) have turned net sellers in the past few days, indicating a cautious stance in the market. If the Nifty index begins to trade below its 20-Day Moving Average (20-DMA) around 19600, it might experience further declines toward 19300 and 18888 levels."

On Tuesday, Fitch Ratings downgraded the United States' long-term Foreign-Currency Issuer Default Rating (IDR) to 'AA+' from 'AAA'. However, the Rating Watch Negative was removed and a 'Stable' outlook was assigned. Meanwhile, the country's ceiling has been affirmed at 'AAA'.

On the global front, in its market commentary report, Axis Securities said, "Asian markets are trading lower today following the news that rating agency Fitch has downgraded the US credit rating from AAA to AA+, citing concerns over expected fiscal deterioration over the next three years."

Meanwhile, the brokerage highlighted that US markets ended mixed in a subdued session, with some profit-taking observed. Investors also took note of data indicating that US manufacturing activity contracted for the ninth consecutive month in July '23. The Dow Jones rose 71 points or 0.2% to close at 35,631, while the Nasdaq slid 62.11 points or 0.4% to 14,284.

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