Market freefall to a 5-month low leaves investors poorer by Rs 4 lakh crore

The BSE Sensex on March 13, 2023, tanked 897 points or 1.52 percent to 58,238, while the Nifty50 plunged 259 points or 1.5 percent to 17,154, the lowest closing level since October 13 last year

When the US sneezes, the rest of the world catches a cold. That’s what happened with the global markets on March 13 after the Silicon Valley Bank (SVB) crisis dragged Wall Street lower on Friday. The Sensex closed 897 points lower at 58,237.85. The Nifty slid 258.60 points at 17,154, marking a five-month low.

About 764 shares advanced, 2,748 shares declined, and 145 shares were unchanged. In fact, Nifty fell below the Budget day low of 17,255.20. Investors turned poorer by Rs 4.35 lakh crore.

All sectoral indices ended the day in the red with the fear gauge index or India VIX zooming over 21 percent.

Here’s what dragged the markets lower

Silicon Valley Bank collapse

The failure of SVB, the banking partner for many start-ups in the United States, spoiled investors’ sentiment. It is the biggest retail banking failure since the 2008 global financial crisis. Though federal regulators stepped in and assured depositors access to ‘all their money’, it wasn’t enough to assuage concerns. The closure of Signature Bank, a lender that counted a number of crypto companies as customers, came as another blow.

Also Read: Banking Central: Why an SVB-like crisis is unlikely in India

All sectors in the red

No sector was spared in the sell-off. Financials and autos took the biggest blows. The Nifty Bank fell 2.27 percent, while the Nifty PSU Bank tumbled 2.87 percent and Nifty Auto dropped 2.24 percent. The Nifty Bank index closed near its lowest level in February, which was 39,490.50. This was despite brokerages allaying all fears on the Indian banking system.

Indian banks have a strong asset liability management (ALM) position with only a quarter of their deposits lying as investments in securities, both government and private, said Jefferies. That gives considerable cushion to the market that accidents such as the collapse of SVB are unlikely to happen here.

Also Read: Indian founders react to Silicon Valley Bank crash: 'One of my first investors'

India VIX

An indicator that is often seen as a measure of the amount of fear in the stock market surged over 20 percent, hinting at a drop in confidence among investors for positive returns. This was the biggest gain for India VIX in this calendar year so far. The last big gain was of 18.18 percent on January 27, a few days after the Hindenburg report triggered a sell-off in Adani stocks.

Global cues and Wall Street futures

Dow futures, that were up over 300 points earlier in the day, wiped off all gains and turned negative in the afternoon. Shares of First Republic Bank fell over 60 percent in pre-market trading in the US. Coming to Asian markets, Japan’s Topix fell 1.51 percent to close at 2,000.99. The Nikkei 225 fell 1.11 percent to close at 27,382.96. The pan-European Stoxx 600 index fell 2.35 percent, with banking stocks leading losses with a 5.7 percent drop after HSBC bought out SVB’s UK arm for £1.

India CPI inflation

India's headline retail inflation edged down only marginally in February 2023 from January’s three-month high of 6.52 percent. In-line with Moneycontrol poll of economists, Consumer Price Index (CPI)-based inflation eased to only to 6.44 percent last month. The estimates ranged between 5.89 percent and 6.62 percent. This could indicate higher-for-longer interest rates.

Also Read: CPI inflation seen only a tad lower at 6.4% in February; cereal issues may persist

Fed fear

In response to SVB’s collapse, the Fed has made additional funding available to depository institutions via a new Bank Term Funding Program (BFTP) through which the bank’s depositors will be protected.

“Does it mean that there is now a Fed put and the worst is over for stocks? We do not think that is the case. US inflation is still elevated and the Fed will look to bring it down, and there remains the spectre of a slowdown in US growth,” analysts at Nomura said in a report.

The Fed put is a general term used for the market’s belief that the Federal Reserve will ease monetary policy whenever the stock markets are on a decline.