Stock Watch: The Silicon Valley Bank crisis!

Stock Watch: The Silicon Valley Bank crisis!

 By Amit Sinha*

Weekly Insights – Technical
06 March – 10 March

Indian Stock Market Indices status as of day closing March 10, 2023:

Sensex: 59,135 (- 671.15) – 1.12%
Nifty 50: 17,412 (- 176.70) – 1.00%
Nifty Bank: 40,485 (- 771.30) – 1.87%

The benchmark equity indices slid abruptly approximately 1% on news from the US Wall Street that a new crisis has emerged as the Silicon Valley Bank (SVB), which serves as a big lender to venture-backed start-ups, was not able to pay its investors.

The SVB tried to fire sell 21 billion of bonds which got executed only after a loss of 2 billion as there were fewer buyers to buy the bonds. Finally, they had to dump their own stock holdings to generate funds. The FDIC (The Federal Deposit Insurance Corporation), the US stock market’s independent regulator had to shut SVB’s operations to avert a further crisis on liquidity and solvency issues as SVB’s share prices were also going down drastically. On this trigger note, large banks in the United States tanked up to 5-6% while smaller banks had fallen even more. This is seen as the biggest banking failure in the US after the year 2008 (The Lehman Brothers crash). Interestingly, Hindenburg failed to capture this in-house crisis and so did other international agencies such as Credit Suisse, Barclays, Chase Manhattan Bank, Citibank etc. Ironically, only the other day they were raising red burning flags on the Indian banking system through the Adani ‘exposure’! 

Liquidity concerns are rising in the US Financial system. Economists see the SVB crisis as another blow to the US economy, adding to the already rising inflation. US Fed is strongly moving forward in favour of a .50 basis points increase by this month’s end. It’s a catch-22 situation where unemployment is rising along with inflation despite the US FED continuing its aggressive stance. They are hoping for more unemployment so that the buying power reduces therefore curbing inflation. Bond yields are crashing as more and more investors want to sell and safeguard their money by securing in a stable category, which is not a good sign in a normal market scenario.

On Friday, March 10, 2023, India along with Europe and the rest of Asia also started panicking about the SVB crisis and its spiral effect on other US banks and hence the world witnessed the stock markets taking further bearish moves.

Biden Increases Taxes – In his released proposed $ 6.8 trillion budget 2024, US President Joe Biden  has tried to offset a budget deficit of around $3 trillion. “President Biden’s budget contains some $5 trillion in proposed tax increases on high earners and corporations over a decade, much of which would offset new spending programmes aimed at the middle class and the poor,” the New York Times stated. However, many see it as an unusual, unserious proposal with a road map for fiscal ruin.

Russia-Ukraine war – The attacks have increased lately from both sides, but it’s not seen as having a major impact on the Stock market. 

Pump and Dump of Stocks – The Securities and Exchange Board of India (SEBI), the market regulator, has cracked down on Arshad Warsi, the Indian actor and 44 others by banning them from stock market trading and has also imposed severe fines on them. The SEBI has accused them of engaging in stock price manipulation. Their videos on youtube tried to influence investors to buy stocks of certain companies after falsely inflating the prices only to dump by the operators. Arshad and others who allegedly did the price manipulation made profits by selling their own shares while the prices were high. According to SEBI, Warsi made a profit of 2.9 million rupees and his wife Maria Goretti earned a profit of 3.7 million rupees. However, on Thursday, March 9, 2023, Warsi tweeted naively that he and his wife both of who are implicated had “zero” knowledge about the stock market and had lost “our hard-earned money” after investing in shares on a third party’s advice.

Nifty50 chart on Daily Time frame as on March 10, 2023 (closing)

Next Week Trading Session Outlook: 

Upcoming sessions are going to witness more concerns on the US Financial News, particularly concerning the SVB crisis and its implication in US financial market. FDIC, the US Stock market regulator has shut down 5-6 more banks’ share trading along with SVB ( in the Indian context, the asset size of SVB is similar to that of HDFC Bank). As the world economy is interconnected, a ripple effect is imminent throughout the world market. On the job data front (non-farm) for February 2023, a report released on Friday, March 10, 2023, in the US, confirms more than expected growth. The specific payrolls rose by 311,000 in February which is above the Dow Jones estimate of 225,000. It has a negative impact on the Federal Reserve’s efforts to slow down the economy and bring down inflation.

Impact on Indian Stock Market 

Without doing fear-mongering, it looks like markets are heading for more downtrends in the short to medium trend and expecting an immediate denial of crisis by the US FDIC that “all is well in control”. However, the reality could be unearthed after a few days/weeks from now that the problem was more than what meets the eye as of today. This situation can turn more grave as more and more banks around the globe have this cascading effect following the SVB crisis. 

Investors should brace and be mentally prepared to see a further downslide in stocks, not particularly more in Bank Stocks as our banking structure is stronger (as compared to the US) and well-regulated by the Reserve Bank of India. The Liquidity Ratio is maintained in strict compliance by means of CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio) by all the banks here in India.   

It will be advisable to have strict stop losses and not to get allured into panic buying or selling as the market is going to witness both sides’ volatile moves in a daily time frame over the next few weeks. There is a high chance that there will be distribution at higher levels in top large and mid-level stock shares. Technically, exit on bounces should be the order of the day for the next few weeks’ trading sessions.

Disclaimer: The opinions expressed within the content are solely the author’s (not a SEBI registered advisor) and do not reflect the views and beliefs of the website or its affiliates. One should consult a qualified broker or an independent financial advisor before making any investment.

*The writer is a long-term investor/trader. The views expressed are personal.