Indices tank 1% after Fitch spoils mood on Street

economictimes.indiatimes.com:

global markets, after Fitch Ratings cut the sovereign credit rating of the US, the world's largest economy, by one level from the highest AAA to AA+. The selloff on account of the unexpected downgrade resulted in the Nifty closing below a key support of 19,560, which analysts said has opened up the likelihood of the index dropping another 2-3% unless there is an immediate rebound.NSE's Nifty fell 207 points, or 1.05%, to close at 19,526.55. BSE's Sensex declined 676.53 points, or 1.02%, to end at 65,782.78.

Both indices had fallen as much as 1.5% with the Sensex shedding over 1,000 points in Wednesday's trading before recouping some of the losses. Metals, automobiles and banks led the decline. Tata Steel fell 3.5% and Tata Motors dropped 3.2%.

Fitch cited fiscal deterioration over the next three years and a decline in governance standards as reasons for the downgrade. Analysts said continued elevated debt levels will begin impacting global economic growth. «The downgrade is a timely reminder about bloated government debt and the somewhat unsustainable path of fiscal spending and public debt, which could be a drag on global GDP growth,» said Sanjeev Prasad, MD and co-head, Kotak Institutional Equities.

Elsewhere in Asia, Japan cratered 2.3%, China sank 0.9%, Hong Kong fell 2.5%, South Korea declined 1.9% and Taiwan dropped 1.9%. The pan-Europe index Stoxx 600 fell 1.35%. In the US, the Dow Jones was down 0.81%, the S&P 500 was down 1.28%, and the Nasdaq Composite was down 2.12% at the time of going to press.FPIs dump shares worth Rs 1,878 crore Analysts said the stability in US bond yields and the dollar indicates the impact could be short-lived as history shows.