Key benchmark indices in India and around the globe crashed on Wednesday after Fitch downgraded US sovereign credit rating to AA+ from AAA. Sensex shed 676 points to close at 65,785, while the broader Nifty was down 207 points at 19,526.6. 

Nifty closed below the 20-Day Exponential Moving Average (DEMA) of 19,562 for the first time since March 31. Bank Nifty, too, closed below its 20 DEMA of 45,347 for the first time since June 26. The Foreign Portfolio Investors (FPIs) were seen liquidating their long positions for the fifth consecutive trading session and the Long Short Ratio has now fallen from 73 per cent on July 6 to 51 per cent on August 1. 

Ashwin Ramani, Derivatives & Technical Analyst, SAMCO Securities, said, “It remains to be seen if bulls attempt a bounce back. Failure to do so would mean that this might be the beginning of a healthy correction after a sharp up move.”

Tokyo’s Nikkei index ended lower by more than 2 per cent, while European stocks slumped as Fitch’s downgrade of the US sovereign credit triggered risk-off trades across the board, while earnings reports did little to offset the negative sentiment. 

Rate hike cycle

Deepak Jasani, Head of Retail Research, HDFC Securities, said, “Global stock markets fell Wednesday after ratings agency Fitch downgraded its US credit rating, citing “a steady deterioration in standards of governance” and the repeated debt ceiling stand-offs. This action spurred a rapid retreat from riskier assets. However, hopes that the US Federal Reserve was near the end of its interest rate hiking cycle and a still-resilient economy put a floor to the downbeat mood.”

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Riches Vanara, Technical And Derivatives Analyst, stoxbox, said, “In the upcoming sessions, investors may remain cautious ahead of the US non-farm payrolls report and the Bank of England’s monetary policy decision later this week. However, we may continue to see some stock-specific action amid the ongoing earnings season.”

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