The stock market is under pressure ever since RBI has become aggressive in increasing the interest rate to anchor Inflation as also due to Europe problems and the selling in our market was catastrophic when last week Dow fell over 500 points in a day. This weekend traders are even more in jitters about what could happen this week, since rating agency Standard & Poor‘s downgraded U.S. Treasury Bonds from a AAA rating AA+.

To follow S&P, Moody and Fitch are about to release their ratings of U.S. Treasury Bonds in this month.

This news is hitting the headlines and traders are nervous about this rating downgrade to have big impact on stock market across the globe.

What could be the likely impact due to this downgrade:

• Interest rate will go up in US Bonds.
• Asian Currencies may appreciate.
• China and Japanese stock market may turn turbulent as China is the largest holder of  US Treasuries worth $ 1.16 trillion and followed by  Japan holding $ 912.40 billion.
  

• US Budgetary Deficit will be addressed by hiking Corporate / Personal Tax, which will have negative impact on spending in Technology which in turn will be a bad news for our IT sector.
• Most Importantly Oil prices will start falling which is good for our oil marketing companies like BPCL / HPCL and IOC
• If the downgrades leads to collapse of OIL and Commodity prices, then RBI might pause increasing the interest rate hike.
• Last but not least, money could flow in to GOLD as safe haven.
• Our Market, Nifty is highly oversold and on last Friday, RSI has turned below 30 and this news can spook the market in a big gap down on Monday and I will not be surprised if market finds a temporary bottom before the day is over. Corrections normally ends when big news scares every trader.

Having said that, if  Nifty Future closes below 5125, one needs to be very careful in going long in market by leveraging the position. The age old Technical rule of a stock / Index  closing below 20% from highs, will invite reversal of earlier trend and will come into force when Nifty Future closes below 5079.

This debt downgrade is just an another news in world’s bigger financial mess, and nothing to read as alarming one, as US right now not facing the problem but down the road it may endup in mess like Europe if they don’t find long term solution to their nation’s Budget deficit.

C T RAMESH RAJA