Markets shrug off Moody's rating downgrade; Sensex, Nifty rise 1.6%

India’s credit rating downgrade by Moody’s Investors Service failed to make a dent in investor sentiment on Tuesday as the benchmark indices gained for a fifth straight day, with the Sensex and the Nifty50 indices rising 1.6 per cent each to end at their highest close since March 13. 

The rupee and the 10-year government bond, too, held steady, despite the red flags raised by the rating agency. The yield on the bond softened 2 basis points to end at 5.76 per cent, while the rupee strengthened 19 paise against the dollar to end at 75.36. 

After market closing on Monday, Moody’s lowered India’s credit rating from Baa2 to Baa3 — a notch above junk— with negative outlook, citing a sustained period of slow growth, deteriorating fiscal position, and stress in the financial sector. 

Experts said the markets remained vulnerable to the risks highlighted by Moody’s and also possible actions from other agencies. However, the positive momentum in the global markets, prospects of the reopening of the economy, and the assurance from the government that the economy would soon enter a high-growth trajectory kept investor sentiment bullish.

“Moody’s credit rating downgrade was trumped by the expectation of the economy opening up. The government has again reiterated its commitment to continued reforms to strengthen the economy. In spite of many possible negative triggers, positive sentiment still drives the markets,” said Vinod Nair, head of research, Geojit Financial Services.

The Sensex gained 522 points to end at 33,825, while the Nifty rose 153 points to end at 9,979.

Both the indices have rallied 13 per cent in the last 10 trading sessions. The ongoing five-day winning streak is the longest since November. The Sensex and the Nifty are now up more than 30 per cent from their Covid-19 lows, made on March 23. However, both the indices are down 20 per cent from their all-time highs made on January 17.

“Today's rally was based on domestic news flows, especially the PM’s address to corporates completely changed the picture of the market,” said Shrikant Chouhan, executive vice president, equity technical research at Kotak Securities.