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BS Reporter  |  Mumbai 

Stock across the world were enveloped in fresh fears of credit turmoil with the lowering of credit ratings of Greece and Portugal. Almost every single European index ended in the red on Wednesday. The Indian indices registered their worst single-day fall in almost three months.

experts — while maintaining that India remained a great story for investment — cautioned that further negative newsflow on the global macro-economic front could depress the equity even more.

The Indian benchmark indices traded in the red for the complete session on Wednesday. There were more than three losers for every single gainer. The benchmark 30-share Sensex of the Bombay Stock Exchange (BSE) opened lower, before falling further to touch a low of 17,344. It finally ended the day at 17,380, shedding 310.54 points or 1.76 per cent.

The broader S&P CNX Nifty of the National Stock Exchange (NSE) lost 92.90 points or 1.75 per cent to end the day at 5,215. All the sectoral and the broader indices of NSE also lost more than 1 per cent each. Key losers on the Indian bourses included Reliance Industries, Tata Steel, Tata Motors, ICICI Bank, TCS and Bharti Airtel.

The trigger for the decline was the lowering of the credit rating of Greece from BBB+ to BB+ (junk) by Standard & Poor's, warning bondholders that they could recover only 30 per cent of their initial investment if the country restructures its debt. This put Greece on par with bonds issued by Azerbaijan and Egypt.

This is the first time a Euro member has lost its investment grade since the currency’s 1999 debut.

S&P has also lowered the rating of Portugal to A- from A+.

The fallout included yields on Greek two-year notes jumping to a record 26 per cent and the euro trading near a one-year low against the dollar.

While stocks worldwide tumbled, the cost to insure against losses in corporate debt increased. The borrowing costs from Italy to Portugal to Ireland also surged. The MSCI Asia Pacific Index dropped 2 per cent.

“The markets were ignoring bad for long,” says Andrew Holland, CEO, Ambit Capital. “We were all aware of the problems faced by Greece and I do not really see any fresh fears. Yes, I would have been worried if EU would not have bailed out Greece. But, that is not the case.”

The scene was no different in the currency market. The Indian rupee weakened, in line with currencies across most of Asia’s developing economies, as credit-rating downgrades for Greece and Portugal impacted investor sentiment. The rupee weakened 0.4 per cent - the most in a week - to 44.64 against the dollar. Interestingly, dealers are already talking of levels around 44.75. The yield on 10-year benchmark bonds remained flat at 8.09 per cent.

Meanwhile, key indices in Europe lost in the range of 1-3 per cent. Austria’s ATX was down 3.32 per cent, while Belgium’s BEL-20 lost 2.53 per cent. Asian indices also tumbled with the Nikkei and Hang Seng losing 2.57 per cent and 1.47 per cent respectively.

Agencies have reported that the European Central Bank President Jean- Claude Trichet and International Monetary Fund Director Dominique Strauss-Kahn would be meeting German politicians in Berlin to promote a financial rescue plan.

Interestingly, some market experts are looking at this development with a positive outlook. “Another way of looking at this whole issue is that the interest rates in Europe would remain low and so liquidity directed towards emerging economies would be abundant,” said the institutional head of a foreign brokerage.

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First Published: Thu, April 29 2010. 00:28 IST
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