scorecardresearchUS debt ceiling bill passed: 3 experts weigh in their views on the possible

US debt ceiling bill passed: 3 experts weigh in their views on the possible effect on Indian markets

Updated: 08 Jun 2023, 02:42 PM IST
TL;DR.

Indian markets respond positively to the raised debt ceiling bill passed by Congress in the US Parliament.

President Biden signed the historic debt ceiling bill passed by Congress on Saturday.

President Biden signed the historic debt ceiling bill passed by Congress on Saturday.

Uncle Sam signed the historic debt ceiling bill passed by Congress post weeks of debates and deliberations surrounding the US’ financial status and how the country would be reeling into debt and default if the alleged debt ceiling is not renewed.

The Fiscal Responsibility Act of 2023 lends a legal mandate to the government to raise the debt ceiling in order to renew borrowing and maintain the obligations paid. Fearing that the government would default on its $31 trillion debt as per records by the Treasury, both political representatives and rivals in the US had warned against the current debt ceiling and had sought its raising by Monday.

Democratic Majority leader Chuck Schumer told the Senate, “America can breathe a sigh of relief, a sigh of relief because in this process we are avoiding default.”

While Americans can certainly breathe with the world’s largest economy being now able to borrow for economic growth, investors in India are concerned about the effect of its decision on the Indian markets. The spillover effect is palpable with the American economy now showing renewed signs of resilience and growth as opposed to naysayers’ views of an imminent market crash.

What does the passing of the new law hold for the Indian stock market? Viral Bhatt, Founder, Money Mantra said, “The signing of the debt ceiling bill into law by Biden could affect Indian markets. The US is India’s largest trading partner, and any economic instability in the US could have a ripple effect on the Indian economy. Additionally, the Indian stock market is closely linked to global stock markets, so any volatility in the US markets could also impact the Indian markets.”

Does this mean that the market would go higher and higher? The answer is “No”. Stock market movement depends on a lot of factors and a mere passing of the debt ceiling bill into law cannot determine its further course.

“It is important to note that the impact of the debt ceiling bill on Indian markets is likely to be limited. The Indian economy is relatively insulated from the US economy, and the Indian government has taken steps to mitigate the impact of the debt ceiling bill. For example, the Reserve Bank of India (RBI) has announced that it will provide liquidity to the markets, and the Indian government has said that it will continue to invest in infrastructure projects. Overall, the signing of the debt ceiling bill into law is unlikely to have a significant impact on Indian markets. However, investors should be aware of the potential risks and take steps to mitigate their exposure,” added Bhatt.

Nitesh Buddhadev, Founder, Nimit Consultancy explained, “This piece of news was already factored in the market. It was expected that the US will increase the debt ceiling; however, it was just a matter of how long this drama would continue.”

Can Indian investors now expect a new high in the market? Rishabh Parakh, Chief Play Officer, NRP Capitals suggested, “Raising of US debt ceiling is a positive thing but that is not the only thing or a driving reason for the market to be high. In fact, market high is not a destination, but your goals are. And I am more focused on the Indian growth story in the coming years that makes it more exciting for investors to look forward to.”

The world’s largest economy can now heave a sigh of relief as the enactment of the bill implies an aversion to default, which would have otherwise triggered huge job losses and recession, thus, making a huge dent in the country’s financial system. Indian markets realizing how all is not lost to the fear of imminent recession have responded in commensuration with the global markets.

Though the Indian economy is relatively insulated and protected against upheavals in the global economy, risk-averse investors may consider investing in assets that are less sensitive to the US economy, such as gold or Indian government bonds.

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First Published: 08 Jun 2023, 08:55 AM IST