US rating cut leaves Indian investors poorer by ₹3.5 tn

FPIs sold shares worth a provisional ₹1,877.84 crore on Wednesday, even as domestic institutions sold shares worth a meagre ₹2.2 crore. As foreign investors repatriated dollars after selling their Indian assets, demand for the greenback rose, driving the rupee lower by 33 paise to close at ₹82.59 to the dollar.

The Nifty’s 207-point fall was the steepest in 11 months, while the Sensex’s 676.53 points was the sharpest in three months.

The risk-off sentiment was reflected in the prices of safe-haven asset gold, which rose 1.6% during the day in the international market to $1,946 an ounce (31.10 gramme), and in the fear gauge India Vix, which surged almost 10%, the most in five months, to touch 11.28. The Vix is inversely correlated with the stock market, rising when the markets fall and vice versa.

Losses in the bellwether Nifty index were led by NTPC Ltd, Bajaj Finserv Ltd, Tata Motors Ltd, Tata Steel Ltd, and Hero MotoCorp Ltd, which fell between 2.7% and 3.5%. The advance-decline ratio was tilted in favour of the latter, with 49% of National Stock Exchange (NSE) of India Ltd’s 12,148 stocks declining, against just 39% of them advancing, while the rest remained unchanged.

However, market experts believe the fall was a knee-jerk reaction to Fitch’s downgrading of US credit ratings by a notch. Twelve years ago, S&P had similarly downgraded US credit ratings by a notch.

“It’s a theoretical downgrade with concerns rising every time that the US government is confronted with a debt ceiling, even though a default has always been circumvented,” said Piyush Garg, the chief investment officer of ICICI Securities Ltd. “We are positive on the markets and expect the Nifty to test 21,000 by November with any meaningful correction happening only thereafter amid state assembly elections, unless, of course, some negative surprises in global markets crop up before that.”

Not just Indian stock markets, peers like Nikkei tanked 2.3% and the Hang Seng fell 2.47%. The German Dax traded lower by 1.11%, while the French CAC was down by 0.75% at the time of writing. In India, one of the pointers of anticipated correction was FPIs liquidating their bullish bets on index futures contracts (Nifty and Bank Nifty) from 10,4328 to 5,667 over just seven trading sessions. Mint reported this in its edition dated 2 August.

Indian analysts see the global risk-off sentiment as a temporary one. “It can create a temporary risk-off moment for markets. However, it has no long-term impact as we know that developed market governments are getting more indebted,” said Hiren Ved, the whole-time director and chief investment officer of Alchemy Capital Management.

FPIs have been at the vanguard of the latest bull market rally from a low of 16,828 on 20 March to the record high of 19,991.85 on 31 July, a rise of 19%. From there, profit booking has set in, with the Fitch downgrade being used to take some profits off the table by FPIs who have invested $18.1 billion in FY24 so far, following two straight years of selling —$18.5 billion in FY22 and $5.1 billion in FY23.

Futures and Options cues point to a slight bearish build-up with active Nifty futures contracts open interest (outstanding buy-sell positions) rising 4.4% and that of Bank Nifty futures rising a mere 1.13%. A rise in open interest accompanied by falling prices indicates a short build-up.

Updated: 03 Aug 2023, 12:20 AM IST