U.S. debt crisis to benefit Indian market ????

Finance minister Pranab Mukherjee on Saturday described the downgrading of the US government's credit rating from triple A to double A on Friday as a grave situation. But he said, “I am not unnecessarily worried, there is no point in pressing the panic button”. Indian industry captains, too, did not seem to be overly concerned over the situation.
“There is no reason to worry. It would not have too much impact on the (Indian) economy,” Adi Godrej, chairman of Godrej Group and president designate of CII, told reporters on the sidelines of a CII function.

"In the short term, there would be pressure on the market because the problems will not go away in a hurry," said Shankar Char, head of sales trading,ICICI Securities. "Since no one has ever seen something like this, there will be volatility," he said.

The silver lining is that such volatility is expected to be short lived, probably extend for just a week or two, market players said. However, they warned that in case if any of the two other ratings majors-Moody's and Fitch-also cut US sovereign ratings, volatility and uncertainty could increase. 

So far this year, FIIs have pumped in just over $2 billion into the Indian market, compared to about $29.4 billion in 2010, Sebi data reveals. Institutional dealers feel there is no way last year's record inflow could be surpassed this year, but 2012 could be a much better year for FII inflows.

Indian stocks tumbled, rupee fell and bonds climbed on concern the global economy may lapse into recession even as accelerating inflation prompts the central bank to extend interest-rate increases.

Reliance Industries Ltd. (RIL), India’s most valuable company, sank to its lowest price since April 2009. Infosys Ltd., the second-largest software maker, slid to its lowest in 14 months. The rupee is set for its biggest weekly loss in three months. The yield on the 7.8 percent bonds due April 2021 dropped 15 basis points this week, or 0.15 percentage point, to 8.31 percent, according to the central bank’s trading system.

“If there’s going to be some catastrophe in Europe or the U.S. then in the near term all global markets are going to get hit,” Sunil Singhania, head of equities at Reliance Capital Asset Management Ltd., India’s biggest money manager, said in an interview. Reliance Mutual Fund has $23 billion in assets.“With the US credit rating getting downgraded by the Standard & Poor’s and most of the markets falling more than India, FIIs are set to move here as, at worst, the growth rate in the current financial year would be 7.5 per cent.”The US debt crisis triggering deep cuts in the stock markets across the globe is likely to benefit India in due course, said a senior official associated with the market regulator Securities and Exchange Board of India (Sebi).

“The downward movement in the Indian market is a very short-term knee-jerk reaction,” the official said, adding once the situation stabilised, Indian markets would be very lucrative for FIIs.

Under pressure from the fears of a double-dip recession in the US and financial problems in Europe, stock markets worldwide including that of India, witnessed a substantial fall last week.

There is an apprehension of the situation worsening further on Monday with credit rating agency Standard & Poor on Saturday lowering the US credit rating from AAA to AA.

The official said in the immediate run, FIIs might sell in the Indian markets but while taking fresh positions, they will find the markets very attractively placed “Markets like India, which are well-regulated with good economic growth prospects and large number of companies, will certainly be preferred by the FIIs.”