It was expected and now it happened finally, people around world have been arguing for a long time.  The world's largest creditor, the United States of America, has lost its top credit rating for the first time in the last 70 years.  Standard & Poor's (S&P) has downgraded long term US debt from AAA to AA+. The credit ratings agency asserted a negative outlook on long term US debt. It even warned of a further downgrade in the rating within the next 2 years if the US government's debt burden grows higher than that assumed by S&P. 

One can ask how exactly a credit rating matters. In simple words, a credit rating gives the investor an idea about the creditworthiness of the debtor and the risk of default. If a bond has a low credit rating, it means there is more risk. Now, wouldn't you want a higher interest payment for assuming greater risk? Yes, of course! In fact, the impact of the downgrade would be much more severe if the other two large rating agencies such as Moody's Investor Service and Fitch Ratings also follow suit. It would force the US to raise interest rates and thus raise the cost of borrowing for everything. 

If it happened, could be a panic button across the world financial markets which in turn could cause a liquidity squeeze in the Indian stock markets also. But is any of that going to change the economic fundamentals of our economy? We believe there will not be much real impact on India, unlike China which is the biggest creditor of the US. As far as stocks are concerned, we believe sticking to our value investing approach would help us sail through any kind of crisis. 

Now, we can see the chances of emerging markets Looking broadly, we are in the midst of a major shift in the world economic order. The economic super cycle that led the US to become the economic and political powerhouse in the 20th century is clearly turning. The gravity of power is shifting, albeit gradually, to emerging economies. The change will be full of shocks and upheaval. But the good news is that we are perfectly placed in the land of a billion opportunities.