The Sensex closed at 58,237.85, down 897.28 points or 1.52% from the previous close, after breaching the 59,000 mark in late morning trade. The Nifty fell 258.60 points or 1.49% to close at 17,154.30. In the previous three sessions, benchmark indices have declined over 3.5% and wiped out over ₹7.6 lakh crore in investor wealth.
US markets recouped early losses as investors speculated the turmoil in the US banking system will prompt the US Federal Reserve to pause its rate hikes. Earlier in the day, US President Joe Biden sought tougher banking regulations in the US and assured US residents to have confidence in the country’s financial system.
Elsewhere in Asia, Hong Kong and China and Taiwan rose, while Japan, Indonesia and Singapore fell. Europe’s Stoxx 600 index slipped 2.4%.
“The global markets are seeing the consequences of the aggressive rate hikes by global central banks in a short span of time,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.
New Liquidity Programme
“The collapse of some of the large banks, including the Silicon Valley Bank, is expected to have short-to-medium term repercussions on the startup funding activity that will cause further stress in the financial system,” said Holland. US regulators shuttered New York-based Signature Bank on Sunday, the third-largest failure in the country’s banking history, following the collapse of Silicon Valley Bank two days before. Simultaneously, the US Federal Reserve on Sunday launched a new liquidity programme to ensure banks can meet redemptions by depositors amid worries about bank runs.
HSBC agreed to acquire Silicon Valley Bank’s British arm for 1 pound in a deal that will protect customer deposits. Shares of HSBC fell 3.5%, while Commerzbank collapsed as much as 12% and Credit Suisse lost nearly 10%.
The risk aversion to banks globally rubbed off on shares of lenders locally. The Bank Nifty lost more than 2.2%
“The situation in the banking sector, as a result of aggressive rate hikes, will hurt the market sentiment in the near term, and a significant correction cannot be ruled out,” said G Pradeepkumar, CEO, Union Mutual Fund. “Riskier investments will get left out and investors will become more choosy. They will separate the grain from the chaff.”
Foreign portfolio investors (FPIs) on Monday sold shares in the cash segment worth Rs 1,546.86 crore while domestic institutions bought shares worth Rs 1,418.58 crore, according to provisional stock exchange data.
Some market participants said the crisis in the US banks may force the Fed to tone down its hawkishness.
“Will the US Federal Reserve raise interest rates by 50 basis points at the March meeting? Maybe not, otherwise it will exacerbate the ongoing situation in the US banking sector,” said Holland. “Maybe the Fed will keep interest rates on hold, or raise rates by 25bps, but markets will remain volatile till the overall situation normalises.”
The losses in broader markets were bigger than in frontline stocks. The NSE Midcap 150 index fell 1.8% while the Smallcap 250 index declined 2.1%. Market breadth was weak with 220 stocks rising against 1,752 falling on the NSE. Among blue chips, IndusInd Bank was the biggest loser, down 7.3%, followed by State Bank of India, which dropped 3.2%, Tata Motors, which fell 2.9%, Mahindra & Mahindra, down 2.75%, and Adani Ports, dropping 2.69%.
