US Downgrade

CONTENT

Factors for US Downgrade Prospects for Developing Countries Impact on India

MAJOR FACTORS FOR US DOWNGRADE

Debt ceiling Limit set by US congress on the amount of debt the

government can borrow.

High fiscal account deficit In 2011 federal budget, the US government

estimated the expenditure at $3.82 trillion and revenues at something more than $2 trillion

U.S. political problems To approve the debt ceiling both democrats and the

republicans agreed on consensus.

S&P cut down the rating from AAA to AA+

PROSPECTS FOR THE DEVELOPING COUNTRIES IN THE LIGHT OF DOWNGRADE

The world economy continues to recover from the global crises

It would take 4-5 years before employment is back at pre-crisis levels in developed countries

Food supply growth fell short More and more countries are expected

to further unwind both monetary and fiscal support measures

Fiscal policy needs to be redesigned

IMPACT ON INDIA

IMPACT OF US DOWNGRADE India is likely to witness volatility over the next few days and the

market may trade lower. It is expected a 5-7% downward impact on the domestic market.

OUTLOOK FOR INDIA India will outperform on downside, it is expected next year to be

very good, as rates will peak and inflation will ease. There may be even 20-25% returns.

ON DEFENSIVES Valuations in defensive stocks are too high.

ON INFRASTRUCTURE Infrastructure stocks are waiting for interest rates to peak. After

that, you can start buying. But they will do well in the next two year.

ON INFORMATION TECHNOLOGY IT is one sector where historically large-caps have broadly

delivered. the IT industry is doing well in 9-12 months.

CONCLUSION

U.S the strongest economy on verge of economic crisis

Adverse effect on share market Fear of double dip recession materialising Downgrade in U.S affecting European nations