Stock investors ignore Moody’s India’s downgraded rating
Published On: Tuesday, June 2, 2020 | By: Team KnowMyStock
International rating agency Moody’s downgraded India’s sovereign rating by a notch to Baa3 from Baa2 with a negative outlook over a weak reform push contributing to a prolonged period of slow growth that it expects to continue beyond the Covid-19 pandemic. Downgrade by Moody’s was expected, and it is unlikely to unsettle the markets in a major way on Tuesday, said, experts. Finance ministry downplayed the demotion to the lowest investment grade, pointing out that “35 countries have been downgraded — this is their view”. But there can be some kneejerk reaction in the spot markets, which the Reserve Bank of India (RBI) can take care of. “It was expected that Moody’s would align back India’s rating with the other two rating agencies (Fitch and S&P). India continues to remain investment grade, and this downgrade should not materially impact the markets,” said experts.
Besides, the central bank has been quite active in the currencies and bond markets of late, and should be able to step in to arrest any undue volatility.
Stock markets has ignored rating changes which is nothing new. Today’s rally in domestic stocks was a redux of November 8, 2019, when the market had hit a record high after Moody’s changed India’s outlook to ‘negative’ from ‘stable’.
This response of markets is because rating agencies look through the rear-view mirror, but stock market looks ahead. By the time a rating status is cut, financial markets would have already priced that in and moved on, according to experts.
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