Markets volatile as US Fed meets, fears of more bank failures
Global investors remained on the edge amid threats of contagion of the banking crisis despite ongoing efforts to rescue First Republic Bank and Credit Suisse
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Business News/ Markets / Stock Markets/ Markets volatile as US Fed meets, fears of more bank failures
NEW DELHI :Indian benchmark indices closed lower on Monday during a sharply volatile session as foreign portfolio investors (FPIs) sold a provisional ₹2,545.87 crore worth of shares.
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The equity markets saw a steep correction of up to 1.5% during intraday trades with the BSE Sensex shedding more than 900 points, and NSE Nifty 270 points. Despite a smart recovery of 544 points by the Sensex and 160 points by the Nifty from the day’s low, they closed 0.62% and 0.65% lower respectively.
Global investors remained on the edge amid threats of contagion of the banking crisis despite ongoing efforts to rescue First Republic Bank and Credit Suisse.
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The global market faces numerous hurdles and despite Swiss regulators’ intervention to protect the global financial system, investor sentiment remained shaky, said Vinod Nair, head of research at Geojit Financial Services.
The US Federal Reserve’s decision on interest rate hike later on Wednesday is adding to investor anxiety and uncertainty.
The rupee remains under pressure with FPIs continuing to sell amid prevailing risk-off sentiment.
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Selling in equities during the day was led by metals and commodity stocks, while banking, IT, realty and auto sectoral indices too corrected significantly. Majority of the sectoral indices ended in the red. The broader indices underperformed and shed nearly a percentage point each.
All the Adani Group stocks saw corrections of up to 5% while heavyweights like Reliance Industries also fell to a fresh 52-week low of ₹2,180 during intraday trade. Among the Nifty 50 stocks, four out of every five declined.
“Pessimistic mood prevailing across the global markets triggered a major sell-off in the domestic market, as investors are battling a slew of negative news from turmoil in large global banks to macro-economic concerns and falling commodity prices," said Shrikant Chouhan, head of equity research (retail), Kotak Securities Ltd.
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Traders are also reducing their equity bets ahead of the Fed’s meeting, as any aggressive hike in rates could spell more trouble for equity markets.
The banking crisis in the US has led experts to even anticipate no hikes to a 25-basis-point increase.
However, even a 25-basis-point hike could be considered as bad news for the markets, according to some experts.
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Investors worry banks are cracking under the strain of unexpectedly fast, large rate hikes over the past year to cool economic activity and inflation, and the banking turmoil may cause a recession if it sets off a credit crunch, said Deepak Jassani, head of Retail Research at HDFC Securities.
The rupee, which continued to depreciate last week, on Monday further weakened 9 paisa to 82.64 to a dollar amid sell-off in equities and rising dollar index. FIIs selling continued, which kept the rupee weak after a positive opening on the back of strong dollar, said Jateen Trivedi, VP research analyst at LKP Securities. Going ahead, the rupee will remain volatile as markets await the Fed’s decision, and till then, Trivedi expects the rupee to range between 82.35 and 82.75.
Further, amid the prevailing risk-off sentiment following the bank failures in the US and fears of contagion, as well as Fed’s decision, FPIs are unlikely to turn buyers in the near-term, feel analysts.
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The positive for the Indian markets is declining crude prices. Brent is down to $71 a barrel, a level not seen in more than a year. The decline in Crude prices is positive for the country that remains dependent on imports to meet majority of its domestic oil needs.
Going forward, the markets will continue to track global cues and developments in the US and European banking systems, said experts. While UBS has reached an agreement to acquire Credit Suisse for $3.2bn in an effort to prevent further market disruptions in the global banking sector, $17.2bn worth of AT1 bonds of Credit Suisse will be written off impacting bondholders, said Mitul Shah head of research, Reliance Securities.
Experts say that investor focus should remain on risk management.
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