Indian markets fall amid US tech bank share collapse
Indian benchmark indices fell for the second straight session on Friday, tracking overnight cues from the S&P 500 and Nasdaq, which fell after a crash in shares of tech-focused Silicon Valley Bank amid fears of higher-than-expected rate hikes by the US Federal Reserve
Indian benchmark indices fell for the second straight session on Friday, tracking overnight cues from the S&P 500 and Nasdaq, which fell after a crash in shares of tech-focused Silicon Valley Bank amid fears of higher-than-expected rate hikes by the US Federal Reserve.
Foreign portfolio investors (FPIs) sold a provisional ₹2,062 crore worth of shares, pulling down the benchmark indices Nifty and Sensex by a percent each to 17,412.9 and 59,135.13 points.
Most FPI selling was in stocks of financial institutions, with HDFC Bank shedding 2.6% and Housing Development Finance Corp. and IndusInd Bank falling 2% each.
Citing developments around Silicon Valley Bank, Uday Kotak, CEO of Kotak Mahindra Bank, said in a tweet, “Overnight developments in US banking: markets, analysts, investors underestimate the importance of financial stability for the balance sheet of a bank. When interest rates move up 500 bps from zero in a year, an accident was waiting to happen somewhere." The Fed Funds Rate has been hiked from near zero to 4.5-4.7%, and another hike is expected next week.
The rupee weakened marginally by six paise to 82.05 to the dollar, while the 10-year bond yield closed flat at 7.41%.
FPIs have been selling shares of emerging markets (EM), especially banks, on concerns of a stronger dollar as the US Fed readies to hike rates by a higher-than-expected 50 bps at its meeting next week. Tight labour markets and their upward pressure on inflation could force the Fed to hike the fed funds rate more or at a faster pace.
“This translates into a stronger dollar and weaker EM currencies as FPIs sell riskier assets to move to the safety of the dollar," said Rajesh Palviya, technical head at Axis Securities. “Weaker rupee cuts the dollar returns, and, in turn, exacerbates FPI selling."
Analysts such as Palviya expect higher volatility and corrections in Indian stocks.
“A 4-5% correction in Nifty from current levels can’t be ruled out on higher outflows from FPIs," he said.
So far this year, FPIs have sold shares worth ₹20,153 crore, excluding Friday’s provisional figure, on top of the ₹1.21 trillion they sold in 2022, data from CDSL shows.
Sentiment has been bruised by the recent US Fed statement that a higher rate hike is on the cards to keep inflation under control, which could fuel recession fears going ahead, said Amol Athawale, deputy vice-president of technical research, Kotak Securities Ltd.
“For positional traders, 17550 would act as a medium-term resistance zone, and below the same, the index could slip till 17150. Meanwhile, Bank Nifty also breached the important support level of 41000 or 20-day SMA (Simple Moving Average), which is broadly negative. Below the same, the Bank Nifty could retest the level of 40,000-39,800," Athawale said.
The fear gauge India Vix gained 5.4%, the most in two months, to close at 13.41.
The Vix still shows the market mood to be complacent, staying below the 14-mark.
The average Vix level has been 17.97 over the last year, data from NSE shows. Just as a level below 14 indicates complacency, a level above 22 signals fear. Not all market analysts are cautious, though.
Jatin Gedia, a technical analyst at Sharekhan by BNP Paribas, believes that until the Nifty stays above its 200-day moving average of 17434, it will trade in a 17,200-17,800 range amid sector rotation and stock-specific action.
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