Market Wrap: SVB crisis, Hawkish Fed and global market fluctuations dragged Dalal Street into red

Indian markets on Friday ended in the red after the stock markets witnessed a heavy sell-off partially due to Silicon Valley Bank (SVB) crisis in the US. The banking stocks on Dalal Street plunged as the Nifty Bank index crashed 771 points or around 1.87 per cent as most of the major banking stocks corrected heavily on the weekend session.

On the other hand, the Silicon Valley Bank news on bankruptcy, which broke after Indian market hours, led to a huge beating as major three Wall Street indices — S&P 500, Dow Jones and Nasdaq lost up to 2 per cent on Friday deals.

But experts feel the banking stocks won’t have much effect next week. Indian banks are don;t have much exposure to Silicon Valley Bank and the margins of Indian banks have improved in recent quarterly results.

Markets and Fed’s hawkish comments

Previously, Indian markets fell due to fresh fears of interest rate hikes hit investors’ sentiment. Market participants remained on the sidelines ahead of macroeconomic data on the domestic front. Selling on the final two days of the week dragged markets lower after US Federal Reserve’s hawkish comments jolted traders’ sentiments.

US equity benchmark Dow Jones declined 4.5 per cent during the week amid the fear of aggressive rate hikes and potential repayment defaults. This Sell-off in US equities has triggered a sharp decline in several equity markets around the globe including India.    

Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said “The sell-off in US markets on Thursday was triggered by a crash of 60% in SVB Financials- a bank that mainly funds start-ups. This impacted sentiments and banking stocks took a beating on concerns that rising interest rates might trigger loan repayment defaults. This is a US-specific issue and will not impact Indian banking stocks. But the sentiment impact can be negative. US jobs report will be crucial in influencing the Fed’s policy response and the market direction.” These signals led the BSE Sensex to decline 674 points, or 1.1 per cent, at 59135.1 during the week ended March 10, while the Nifty slipped 181.5 points, or 1 per cent, to 17,412.9.

As many as 20 stocks in the Nifty 50 index delivered a positive return for investors in the week ending March 10. With a gain of 4.8 per cent, NTPC emerged as the top gainer in the index. It was followed by Bajaj Auto (up 2.4 per cent), Shree Cement (up 2.1 per cent), Power Grid Corporation Of India  (up 2 per cent), and Adani Ports and Special Economic Zone (up 1.9 per cent). Tata Motors, IndusInd Bank, and Bharat Petroleum Corporation also advanced over 1.5 per cent. On the other hand, Bajaj Finance, Mahindra & Mahindra, and ICICI Bank declined 3.8 per cent, 3.3 per cent, and 3 per cent, respectively.
Vinod Nair, Head of Research at Geojit Financial Services, said: “The initial gains in the domestic market during the week were a result of improved market sentiment owing to the foreign bulk deal at Adani, the oversold stage of the domestic market, and FII buying.” However, the global market has fallen back into the grip of uncertainty following the Fed chief’s comment that signaled the possibility of a prolonged and faster rate hike, contradicting a dovish comment made by another Fed official last week. The market now anticipates a 50 bps rate hike, which has pushed the dollar index to a three-month high,” he said.
Additionally, Nair said Selling intensified towards the end of the week following further negative cues from the US market and as the market awaited the release of US unemployment and non-farm payroll data, which will have a significant impact on the upcoming Fed meeting. “However, higher-than-expected jobless claims in the US that came in yesterday helped alleviate some concerns about the Fed becoming more strict,” he added.

Stock watch

Sector-wise, the BSE Power index gained the most (6 per cent) during the week gone by. BSE Oil & Gas (up 2.2 per cent) and BSE Capital Goods indices (up 0.4 per cent) have also given positive returns. While BSE Realty, BSE Bankex, and BSE Metal indices have registered a weekly decline of 3.4 per cent, 1.9 per cent and 0.8 per cent, respectively.

Impact of Fed Chairman’s comment on global markets:  Dr. Joseph Thomas, Head of Research at Emkay Wealth Management has commented on Fed testimony “The weakness displayed by the equity market during the course of the current week was generated by the recent developments abroad, and it reaffirms the close alignment of the local market with other major markets abroad.”

He added the statement from the Fed Chairman that “the Fed would be prepared for an acceleration of the pace of rate hikes, if required, to enable it to contain inflation more rapidly and attain the target rate of inflation was a bit of a shock for the market participants who had already concluded that the Fed policy going ahead would be more moderate”. This statement took the wind out of the sails for a while. The other remote factors that have been affecting the markets below the surface are the recent intensification of the Russian offensive on Ukrainian territories, and also the general perception that economic growth may be more sluggish than expected in many territories in the current year Thomas said.

Bank Nifty technical outlook for the next week: Rupak De, Senior Technical Analyst at LKP Securities, said: “The Bank Nifty slipped lower after a few days of consolidation. On the weekly chart, a dark cloud cover pattern is formed, indicating a bearish reversal in the trend. On the daily chart, the index has fallen below its 14-day moving average, indicating bearishness. On the lower end, the index may drift down towards 39650–39500. On the higher end, 41,000 is likely to remain a resistance.”

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