1. Home
  2. Business
  3. Plunge In Stock Market A Panic

Plunge In Stock Market A Panic Reaction: Kaushik Basu

PTI 08 Aug 2011, 17:15:52 IST
PTI

New Delhi, Aug 8: Terming the slump in the stock market this morning as a "panic reaction", Chief Economic Advisor Kaushik Basu today said India's growth story remains intact and there was no need of any policy intervention.

"Right now, we don't need any special measures... Should the need arise, the government and the central bank are in a position to step in... But barring the immediate reaction to what is happening now, the India story remains robust," Basu told reporters here.

He was reacting after the Sensex lost over 500 points within minutes of opening today on concerns over the US losing its top-notch credit rating from Standards & Poor's. The markets, however, recovered as the day progressed.

Though the downgrade of the US sovereign rating is a matter of concern, Basu said there was no need for alarm and people should not overreact to the development.

"The global event is a matter of concern, but not a matter of alarm, because the long run story remains more or less intact," he said.

He said the American economy has been facing difficulties for the past many months and hence, the stock market has already factored in the troubles in the US.

"What we are seeing now is a fluctuation... reaction to this (S&P) news. In the long run, I do believe the market trend remains more or less the same and people should not overreact to it," he added.

If there is a slowdown in the US economy, "which is possible", he said Indian exports could suffer, as America is one of the country's largest trading partners.

"(However) the impact will be short run," Basu said. He further said there are signs of the tectonic plates of the global economy shifting toward the eastern part (China and India) of the world.

"In the next months and in the medium to long run, there will be global capital in search of safe haven... We (India) can become the safe haven that a lot of global capital will be seeking," Basu added.

Late on Friday, global ratings agency S&P downgraded its US sovereign rating to AA+ from AAA, with a negative outlook. This is the first time since 1917 that the US credit rating has been revised.

This resulted in a bloodbath in the Indian markets in morning trade today, with the Sensex plummeting over 500 points.

There have been fears of slowdown in the US, with the economy clocking a 0.8 per cent growth rate in the first half of 2011.

Ahead of the markets opening this morning, the RBI had said it was closely monitoring global developments and would continuously assess any impact on the rupee, forex liquidity and macroeconomic scenario.