Standard & Poor’s Who?

data-src="https://data.indianexpress.com/election2019/track_1x1.jpg" data-lazy-src="https://data.indianexpress.com/election2019/track_1x1.jpg" alt="" width="1px" height="1px" style="display:none;">

Following are some of the views expressed by leading fund managers in the country.

Birla Sunlife

• It will put pressure on the government to carry out reforms at a much higher pace.
• Forex, equity and fixed income markets are likely to react negatively.

As a risk containment measure, we have raised cash levels across schemes and reduced duration in order to take advantage of volatility arising out of this event.

Kotak Mutual

• Put some pressure on the Indian government to expedite its divestment programme and further opening up of the Indian economy by increasing the FDI limits.
• In the backdrop of benign inflation, adequate forex reserves and ample liquidity in the system, the excess borrowings on accounts of bailouts, drought could be easily absorbed.
• We expect the market to remain stable and consolidate at current levels.

Prudential-ICICI MF

• The expectation of a downgrade was already there in the market.
• Since the system remains flush with liquidity, our view is that the markets will start looking up towards October, when banks start taking fresh positions and expectations of interest rate softening will be high in the run up to the credit policy.

IL&FS

Impact on Bonds

No significant impact for the following reasons:

• Foreign participation in the bond markets is minuscule and has no great influence. Domestic players are well aware of the problems on the fiscal front and the markets have probably already priced in this.
• The large amount of liquid surplus available to the banking system has kept interest rates soft in spite of the large appetite of the government for borrowings. Our view on the expected movement in bond yields (range bound with a slightly softer bias) has not changed.

Impact on Stocks

We believe this downgrade formalises the worries that were always known about India’s public finances. The downgrade reflects concerns on several fronts, reforms and divestment being the prime from the market point of view. It would add to the weak sentiment, which is already subdued due to a delay in the divestment programme. Given the valuations of the Indian market, improvement in economic indicators and an insipid global economy, we do not see a case for large-scale withdrawal by FIIs. However, we also do not see significant inflows from FIIs in the current environment.

A potential positive outcome of the downgrade could be that it could put greater pressure on the government to stay committed to the divestment and reforms process. A positive outcome on these could provide the much-needed positive trigger to the market. If not, we could continue to see a range-bound, stock-specific market

First India MF

We expect increase in domestic interest rates to be marginal and foreign money in India debt markets that could possibly pull out is not very large. Considering the liquidity available in the system, RBI has the leverage to inject the same back to the system if required.

Standard Chartered Mutual Fund

• Negligible impact on the bond markets, FDI and FII. There has been no underlying panic in the market.
• We think that this rating action betrays a lack of understanding on the part of the agency on how a large multi party democracy like India operates. Reforms are bound to be slow and setbacks are bound to happen.
• We believe that the government has not lost its appetite for reforms—reasons; the recent spate of reforms in the last six months, oil pool account dismantling, reduction in food subsidies, strategic sale of PSUs.

So the rating downgrade does not tell us anything new about the state of our country but helps put the agenda going forward in sharper focus.

The opinions are compiled by Value Research team, a leading provider of mutual fund data, analysis and opinion in India