Indian markets tank on U.S. downgrade

Indian markets tumbled in early trade on Monday, with the Sensex plunging more than 500 points and the Nifty over 150 points, continuing Friday's sell-off frenzy that seemed to only get hastened by U.S.' credit rating downgrade.

At 10:00 am the Sensex was down 531 points to 16,774 and the Nifty fell 153 points to a new 52-week low of 5,058, hinting at the triggering of extreme bearish sentiments on the Indian markets.

The falls were in line with expectations worldwide after credit rating agency Standard & Poor´s (S&P) on Friday lowered the United States´ AAA rating for the first time since granting it in 1917, just days after a last-minute debt bill saved the nation from a catastrophic default.

The White House-backed deal, that planned on cutting expenditures worth over $2.1 trillion over the next 10 years but was criticised for not increasing revenue sources including more taxes on the rich, was apparently not enough to satisfy S&P.

In a statement, the rating agency said, "We have lowered our long-term sovereign credit rating on the United States of America to ´AA+´ from ´AAA´ and affirmed the ´A-1+´ short-term rating."

"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government´s medium-term debt dynamics," it said.

S&P said that they believed the "effectiveness, stability, and predictability of American policymaking" and political institutions had weakened at a time of ongoing fiscal and economic challenges "to a degree more than we envisioned".

Analysts said that though even without the higher rating, U.S. debt remained one of the safest investments in the World, the shift could trigger a "knee-jerk" reaction in the markets, already struggling to stay afloat, on Monday.

Reacting to lowering of the America's credit rating downgrade, Indian Finance Minister Pranab Mukherjee on Saturday said the situation is 'grave' and India needs to analyze it.

"We will have to analyse it. It will require some time. Situation is grave and there is no gain in making off-the-cuff remarks," Mukherjee told reporters.

Earlier, on Friday, Mukherjee said the stock markets fell due to 'global factors'.

"This is nothing domestic. It is substantially due to external factors. Stock markets fell due to global factors like weak recovery in US and spread of debt burden in Eurozone. Current volatility is temporary," he said.