Downgrade of US credit rating - Whats ahead for Indian stock markets

BSE SENSEX has nosedived by 5% in past one week, thanks to shaken world stock markets in fears of US sovereign debt and S&P’s downgrade of US credit. On Friday, S&P’s has finally downgraded the US credit rating from AAA to AA+. So what’s going to happen in Indian stock markets when they open on Monday morning? Let’s try to guess it..

S&P has downgraded US credit rating form AAA to AA+. First time in history, US credit rating has been downgraded. US as a country has definitely been shaken by this S&P’s move.

S&P's managing director John Chambers says on Sunday that there is a one in three chance of a further US credit rating downgrade over the next six months to two years. "We have a negative outlook ... from six months to 24 months and if the fiscal position of the US deteriorates further or if the political gridlock becomes more entrenched, then that could lead to a downgrade. The outlook indicates at least a one in three chance of a downgrade over that period."

World has certainly been shaken inside out and it clearly visible by early trades in Asian stock markets which are bleeding in RED.

But American leaders and economists are not hugely concerned due to S&P’s downgrading as they are sure that US will not get into double dip recession. US would certainly recover soon to walk on growth path, it’s just that it may take some more time.

I think Indian stock markets today would open in red, with a gap on lower side but may try to recover in the day. On the longer side, Indian stock markets may remain volatile for at least may be couple of months. Also, we may see some earnings downgrading and so sell off in Indian stocks in near term that could take SENSEX and Nifty downwards. how much? We can only guess. Maybe 16000? or even lower?

But I guess Indian stock markets will soon be near it’s bottom and that most of the stocks are available at good to attractive valuations levels. Though India has got it's own set of problems to deal with in terms of rising inflation, political concerns and investments hurt due to corruption woes. These things and government's response to them would matter in near future much more for sure.

Small investors like you and me don’t need to rush in this carnage and make long term investing decisions in hurry. One should wait for some time, find good stocks to buy and start buying stocks in small quantities at every dip for long term portfolio. Keep visiting in next few weeks as I would be posting analysis of some good small cap, mid cap and large cap stocks to buy for long term.