US crisis continues to weigh on stocks

The ripple effects of Silicon Valley Bank’s closure were felt globally, wiping out ₹4.04 trillion of investor wealth in India alone on Monday. Foreign portfolio investors (FPIs) sold a provisional ₹1,547 crore, worsening the losses. The National Stock Exchange’s total market capitalization plummeted to ₹256.56 trillion from ₹260.6 trillion on Friday, with four out of five stocks declining.

Bloodbath was seen in the global market as the fallout of the Silicon Valley Bank shutdown was followed by turmoil at Signature Bank, keeping investors worried about the strength of the US banking system, said Vinod Nair, head of research at Geojit Financial Services.

The domestic indices that had opened with some gains on Monday, however, started declining again in line with global equities. A Sunday joint statement by the US Treasury, the Federal Reserve and the Federal Deposit Insurance Corp. on the safety of depositors’ money were not enough to calm the markets for long.

The turmoil in the global markets continued despite news of HSBC agreeing to buy the British arm of the troubled US tech startup-focused lender for £1.

“We are clearly in an uncertain time with the upheavals in the US banking system,” said Bhavesh A. Shah, managing director, Investment Banking at Equirus.

Shah said investors are worried about a potential contagion risk that could arise from these events and emphasized that all eyes are now on the Federal Reserve’s actions and any potential mergers and acquisitions in the banking industry to mitigate these risks.

Emerging uncertainty around several mid and small-size banks in the US has created nervousness among global investors about the health of the US banking sector, said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services Ltd.

Investors remained cautious, and there was a sentimental impact on banking stocks.

Not surprisingly, banking indices led the selling pressure on Nifty and others as realty, infrastructure, autos and IT sector sectors indices also saw steep losses on a day when all the sectoral indices ended in the red. Reliance Industries saw 52-week lows of ₹2,275 during intraday trading.

The broader indices plunged sharply as well, indicating participants were uncomfortable because of the US banking crisis and were reducing positions, said Ajit Misra, vice-president of technical research at Religare Broking Ltd.

Experts said that all eyes would be on the Fed’s decision in the upcoming meeting, which will have a crucial impact on the market, as the consensus is reversing to a slower or even no rate hikes. In this regard, the US inflation data due on Tuesday will also have a vital impact in the short term as the market anticipates a cool-down from January levels.

Goldman Sachs Group Inc. economists said the investment bank no longer expects the Fed to deliver a rate increase next week. The risk of a banking crisis highlights the tension between Fed’s efforts to cool the economy and tame inflation with increasing concerns that 4.5 percentage points of rate hikes in the space of a year will trigger a recession and a collapse in riskier assets, said Deepak Jasani, head of retail research at HDFC Securities.

Meanwhile, the rupee closed 8 paise weaker at 82.12, thanks to a sell-off in global equities and safe haven bids in the dollar.

Huge bearish bets were mounted on banks, with the open position of the Bank Nifty futures contract rising 19% as the index shed over 2%. Open interest refers to the outstanding buy or sell positions of market participants. A rise in open interest accompanied by a fall in price implies bearishness.

The benchmark Nifty futures contract saw open interest rise by 5.5%, accompanied by the fall in the Nifty, which is also a bearish marker.

“Things are very fluid with Silicon Valley Bank hitting global markets like a bolt out of the blue,” said Sunil Singhania, the founder of Abakkus Asset Manager. “Markets will stay nervous, and we will have to see how the SVB event unfolds. However, the medium to long-term prospects of the Indian market remains intact.”