Domestic markets fell to their lowest levels in five months as the collapse of Silicon Valley Bank (SVB) continued to weigh on investor sentiment, even as regulators tried to contain the damage. Equities markets fell, across the globe, while safe-haven assets such as bonds and gold advanced.
The benchmark Sensex shed 897 points, or 1.5 per cent, to end the session at 58,238, its lowest close since October 14. The index is now down eight per cent from its record high of 63,284 logged on December 1. The Nifty-50 index also lost 1.5 per cent, or 259 points, to close at 17,154, the lowest since October 13. Banking stocks continued to underperform with the Bank Nifty index dropping 2.3 per cent. India Vix Index shot up 21 per cent to 16.22, indicating nervousness among investors.
Safe-haven demand saw gold prices hit a four-week high, while the two-year US Treasury yield fell to its lowest level since early February at 4.26 per cent, from 4.8 per cent last week. In the domestic markets, gold prices firmed up 2.3 per cent to Rs 56,740 per 10 grams.
In early trade, the Sensex gained 375 points as the SVB collapse stoked hopes that Fed will apply brakes on interest rate increase.
However, the optimism was short-lived as investors tried to assess the fallout of SVB’s collapse and concerns about the US inflation numbers, which will be released this week. Federal Reserve chair Jerome Powell had earlier indicated that rate hike decisions will be data dependent. And a bunch of Fed officials had battled for keeping the rates higher till inflation cools down to the Fed’s target of 2 per cent.
Experts said the banking crisis in the US is a clear manifestation of the tightrope all central bankers are going through at the moment of controlling inflation without triggering a recession in the process.
The failure of SVB has raised fears of Indian banks and tech sector being possibly impacted by the contagion effect of the troubles in the US banking system, experts added.
Indian equity markets were already reeling under pressure on concerns around expensive valuations, tight monetary conditions and the fallout of US-based short seller Hindenburg’s report on the Adani group.
The US regulators swung into action after the failure of SVB and put New Yorks’ Signature Bank on receivership. The US authorities also came out with a lending programme that they claimed is big enough to protect the uninsured depositors
“Investors, especially in the western world, are still not clear as to how widespread the issues that brought down SVB Bank. It will take a few weeks for them to figure out how the rise in interest rates will crush bond portfolios. Domestic investors are not particularly spooked but foreign investors are. Our economy is strong and that will lend the markets a degree of support. But even if we are in good shape but foreign investors are jittery because of the turmoil in western markets, it will lead to a degree of volatility,” said Saurabh Mukherjea, Founder of Marcellus Investment Advisors.
On Monday, foreign portfolio investors (FPIs) sold shares worth Rs 1,547 crore. On Friday, they had sold Rs 2,061 crore worth of shares.
Siddhartha Khemka, head of retail research, at Motilal Oswal Financial Services, said there will be elevated volatility until clarity emerges on the potential extent of the crisis.
“The US Fed’s emergency meeting to control the damage would be crucial for the markets. Apart from this release of India and US inflation data along with ECB meetings during the week would be keenly watched,” he said.