Expert Zone

Straight from the Specialists

Rating downgrade a credible threat for India

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(Rajiv Deep Bajaj is the Vice Chairman and Managing Director of Bajaj Capital Ltd. The views expressed in this column are his own and do not represent those of Reuters)

Indian stock markets have hardly gone anywhere since June, with the Nifty hovering in the 8-9 pct range. But the coming months may see a breakout of this range as volatility, as measured by the India VIX index, seems to be rebounding from four-year lows, after having fallen for three months in a row. A short-term break, out of the range, on the downside seems more probable. #gallery-1 { margin: auto; } #gallery-1 .gallery-item { float: left; margin-top: 10px; text-align: center; width: 33%; } #gallery-1 img { border: 2px solid #cfcfcf; } #gallery-1 .gallery-caption { margin-left: 0; } /* see gallery_shortcode() in wp-includes/media.php */ A worker displays rotten wheat grains at a godown on the outskirts of Amritsar June 28, 2012. REUTERS/Munish Sharma/Files An employee inspects a spinning wheel used to roll power wires at Kei Industries in the industrial estate of Bhiwadi, Rajasthan August 6, 2012. REUTERS/B Mathur/Files A labourer carries bricks at a residential complex under construction on the outskirts of Ahmedabad September 2, 2010. REUTERS/Amit Dave/Files

Having said that, the recent collapse in stock prices of some companies, in which promoters had pledged a significant portion of their stakes, shows that the system is cutting down on leverage at the very grassroot level — the stock broker. When this happens, you know that ‘the bottom is nigh’.

The near-term outlook for Indian markets, however, also hinges on developments in the U.S. and Europe. U.S. equities seem to be at the height of their infatuation with QE3 and may be in for a rude jolt.

U.S. drops from AAA to AA+

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

It was S&P that took the lead and downgraded the U.S. with a ‘negative outlook’. The other rating agencies are not comfortable either with the current debt and fiscal status of the U.S. government and may only confirm later what S&P has already done now.

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