Moody's downgrade: Expect bouts of correction; sell-off in markets unlikely

Stock markets generally discount an outcome a few months in advance. They might have seen the bottom in March, unless a more ferocious second wave results in a fresh lockdown, writes Ambareesh Baliga

Moody’s Investor Service on Monday downgraded India’s sovereign rating to Baa3 from Baa2, with a negative outlook. The rationale for Moody’s first such downgrade in two decades was “policy-making institutions will be challenged in enacting and implementing policies which effectively mitigate the risks of a sustained period of relatively low growth, significant further deterioration in the general government fiscal position and stress in the financial sector”. In short, we have been pushed to a notch above “junk grade”.

The downgrade came after market hours, so one wonders if this might lead to a sell-off on Indian bourses on Tuesday, after