Opening Bell - Morning Commentary

US Credit Rating Downgrade to Temper Global Market Sentiment, Local Small and Midcap Stocks are likely to Remain Resilient.

Moody’s Investors Service cut the United States' credit rating, citing concerns over rising debt and political deadlock. This is a jolt to US markets, though it may not impact it immediately, as Moody’s is the last of the three major credit agencies to maintain a top-tier rating for the US.

In the long run, the US establishment must take corrective measures, as a failed or significantly undersubscribed Treasury auction would represent a severe shock to global financial markets. Such an event could precipitate a crisis of confidence in US government debt, potentially leading to sharp increases in borrowing costs across the economy and rapid asset repricing in equity and corporate debt markets.

Last week, Indian equity markets experienced a significant rally, easing geopolitical tensions and upbeat global cues. The U.S. stock market experienced a strong rebound, recovering much of the ground lost during the April tariff-induced selloff. Most U.S. stocks’ weekly gains came following trade negotiations between the world’s two largest economies. U.S. and Chinese negotiators agreed to sharply reduce rates for many recently introduced tariffs for 90 days while pursuing further talks that could result in a longer-term agreement.

Continuous institutional buying in cash markets, FPIs' net short positions in the index markets, and positive surprises on Q4FY25 earnings season in select stocks make us believe that broad-based growth may give way to more sector and stock-specific performance in the coming periods.

The Nifty registered a rally of more than 4% last week, backed by strong broader markets. The Nifty Midcap100, Smallcap100, and Microcap250 indices outperformed the Nifty by soaring 7.21%, 9.17%, and 9.99%, respectively. The next resistance for the Nifty is seen in the band of 25200-25300, where 76.4% and 78.6% retracement levels are placed, respectively. Previous resistance of 24545, derived by 61.8% retracement, is expected to interchange its role as a support going forward for Nifty.

Indian markets are poised to open cautiously in response to sobering signals from US market futures following the sovereign ratings downgrade, though local small and midcap stocks are expected to maintain their resilience.