The Bombay Stock Exchange sensitive index, Sensex, lost 315.69 points to close below the 17000-mark at 16990.18 as stock markets tumbled world-over on fears of weakening global economy on downgrading of the U.S. sovereign rating by the rating agency, Standard and Poor's (S&P), last Friday.

In intra-day, the index tumbled by 546 points. However, it recovered after Finance Minister Pranab Mukherjee said that India was better prepared than many others to handle the crisis situation and its fundamentals continued to remain strong.

The broad-based National Stock Exchange's 50-share Nifty dipped below the 5100-level before closing with a loss of 92.75 points at 5118.50.

S&P, one of the three U.S. credit rating agencies has downgraded the U.S. rating from AAA to AA+, joining Belgium and New Zealand. The other two agencies affirmed AAA after the debt ceiling deal. As was expected, capital markets globally reacted negatively on Monday.

“I do see the downgrade as bad news but not for the obvious reasons. To me the ratings agencies are inadvertently playing a pernicious role in worsening the global policy response to the private sector debt crisis,” said Trevor Greetham, Director of Asset Allocation, Fidelity, a leading investment firm.

“The manner in which financial markets and governments react over the next few weeks will determine how the prevailing fragilities in the global sovereign and financial sectors play out. This, in turn, will impact the trajectory of global growth. Should global growth weaken further, India will be impacted, said Crisil, a leading domestic rating agency.

Partly mitigating factors are the easing of pressures on global crude and commodity prices. Moreover, Indian corporates are likely to be cushioned by a primarily domestic-focussed economy and strong balance sheets.

Impact on India

Impact on Indian equities would be negative in the short-term. India already suffers from high inflation and weakening economy.

However, it is positioned well as compared to other economies for this kind of eventuality.

While growth rate may be slowing, it is still expected to be over 7 per cent.

“We expect policy to refocus on growth as low growth is a also a cause for ratings to be suspect (lower growth means low buoyancy in government finances), said Sameer Kamdar, CEO, ASK Investment Managers.

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