S&P downgrading US Credit rating to AA+ now what ? Indian Markets ??


Here are two things you may like to know today…

S&P downgrading US Credit rating = Simple Noise. It does not change anything

Media is going berserk over the news that US has lost its AAA credit rating for the first time since ratings began about 100 years back. S&P now rates the United States at AA+.

What does downgrade means?

Economically, it means higher interest rates. Something which American economy cannot afford right now. But the question is: Will it happen? Will interest rates really go up? The fact of the matter: It’s the market that determines the price of U.S. debt, not the ratings agencies. And the question one needs to ask: Is the downgrade going to change the perception about US debt. US economy is one of the world’s largest issuer of AAA rated paper. And post losing its rating: What is the alternative? I agree there may be some impact from funds that are legally prohibited from holding non-AAA debt but who knows they may seek change in mandate.

Remember, USA has lost its AAA credit rating but it’s not that some other sovereign country has got AAA rating; and hence serious trade adjustments has to be made. The world will now learn to live with new reality: AAA is now AA+. That’s it :-) I don’t think Credit downgrade is going to cause a major real shock to the system. Some artificial pain may happen because of media noise but that might be short lived.

India is the worst performing market in Asia

 from Year to Date

It’s quite surprising that markets like Thailand, Indonesia and Philippines have posted gains Year to Date. India has been a weak market and that weakness has nothing to do with US or Europe.

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