Indian markets dropped over 1.5 percent on Monday tracking losses in the global equity markets. India's benchmark Sensex fell 1.49 percent or 865 points to 57124 points while Nifty lost 1.53 percent or 265 points to 16834 points. Among Asian markets, Nikkei lost 1.4 percent while Hang Seng declined 3.2 percent. Among European markets, CAC and DAX were down over 1.3 percent while FTSE fell 1 percent. In the US, on Friday, S&P500 and Nasdaq lost 1.1 percent and 0.7 percent while Ibovespa slipped 1.4 percent.
The banking sector is reeling from the shockwaves caused by the recent collapse of Silicon Valley Bank and Signature Bank, both of which experienced significant losses in their bond portfolios. These failures mark the largest bank collapses since the global financial crisis and have had a profound impact on global markets, which have been steadily declining as a result.
Also read: Silicon Valley Bank crash: Actor Sharon Stone says she lost half her money
Investors are now awaiting the US Fed meeting. "Not to forget that the Fed's interest rate decision is due on Wednesday and the market has reversed its expectation from a 50 to 25 bps hike with a probability of 70 percent. Remember that whenever the Fed is done with its hikes, it normally ends up with some crisis and breaks something", said CX Forex in a note.
Factors behind falling markets:
US Fed meeting this week: With the US banking system in turmoil, there was a brief hope among market participants that the Fed may pause on rate hikes. That view has now changed to a 25 basis point hike, which at the margin will continue to hurt sentiment for equities.
Banking stocks: Banking stocks continued to slide despite UBS Group AG's acquisition of Credit Suisse Group AG and the implementation of new dollar liquidity measures by major global central banks. Investors and strategists believe that the global financial markets are still in a state of turmoil with the potential for further decline.
Crude falling: Over the past ten sessions, crude oil has seen a decline of more than 18 percent. This is due to increasing concerns among investors regarding a global banking crisis, leading to a decreased interest in risk assets such as commodities. On Monday, US benchmark crude futures dropped by as much as 2.8 percent to $64.89 per barrel, which is the lowest level since December 2021. The Emkay report attributes the fall in prices to a slow economy, the possibility of a mild recession in the US, and lower utilization by industrial units. Additionally, a more restrained outlook on consumption growth in China has also contributed to this decline.
Heat wave impact: There are growing concerns about the impact of rising temperatures on India's economic growth. However, Poonam Gupta, who serves as a key adviser to the Prime Minister, as well as the head of the National Council of Applied Economic Research, believes that the Indian economy is resilient enough to weather any potential weather-related shocks. Despite this confidence, India's economic growth unexpectedly slowed down to a three-quarter low of 4.4 percent in the last quarter of 2022. If extreme weather conditions lead to crop setbacks in the coming weeks, it could further complicate the Reserve Bank of India's efforts to control inflation, which has remained persistently high above the central bank's target range of 2-6 percent, despite several rate hikes.
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