Stock Watch: US banks create turbulent times
By Amit Sinha*
Weekly Insights – Technical
13 March – 17 March
Indian Stock Market Indices status as of day closing March 17, 2023:
Sensex: 57,989 (+ 355.06) + 0.62%
Nifty 50: 17,100 (+ 114.45) + 0.67%
Nifty Bank: 39,598 (+ 465.50) +1.19%
The Wall Street benchmark equity indices rallied sharply to much relief early last Friday (March 17, 2023), gaining confidence from top banks agreeing to fund the First Republic Bank which was going under a similar crisis of liquidity mismatch as that of the Silicon Valley Bank (SVB) and the Signature Bank. The President of the United States, Joe Biden, also stepped in by making statements to make the public feel secure about their investments in their community banks.
However, this slight smart recovery was still not able to raise the fallen shares of the banks which are still under 30% from the month’s high.
Indian Stock Indices had a swift two hours upside before the closing of the Friday session, prompted by news of the HDFC Ltd and HDFC Bank merger. “The National Company Law Tribunal (NCLT) has cleared the way for the merger of HDFC and HDFC Bank, which is being billed to be the biggest merger in the history of Corporate India”, the news flashed and took the market by a pleasant surprise. We have to wait and watch how much further this news can keep the market from a further continuing downslide for over a week now.
Indian Stock Market has consistently reacted to negative cues from the US Banks’ financial crisis. It saw a one-way downslide over last week until Friday.
The market is still very cautious and turbulent as the risk is by large still contagion because of the assets and liabilities mismatch in most of the US Banks, the primary reason for it being the hazard of the rapid rise of interest rates by the US FED and therefore lowering the value of US Government Bonds where most of the banks hedge their investments. Dow Jones Futures again saw a steep decline at the day end of March 17, on the contagion fear issue. The more the US administration – Joe Biden and US Fed and other top banks are infusing positive placating statements trying to woo the investors and public, the more investors and public are feeling vulnerable and jittery. The effect on the US Stock Market is still not positive and therefore Indian Stock Market also is far from any significant recovery after a brief upswing seen in the last hours of Friday’s closing session.
Nifty50 chart on Daily Time frame as on 10th March 2023 (closing)
Next Week’s Trading Session Outlook
Overall, the sentiments of the stock market do not seem to have improved or have digested the vulnerability of the US Banks. After Friday’s closing, The Wall Street Journal came out with very disturbing news that 186 more small banks in the United States are prone to a similar risk of collapse on similar lines to the SVB. The Federal Deposit Insurance Corporation (FIDC) – a US government corporation supplying deposit insurance to depositors in American commercial banks and savings banks – secures community bank investors with insurance of USD 250,000 against their deposits. However, the major concern is of the shareholders whose investments are not secured and might turn to zero value if the banks are shut down. Also, investors fear that this will also see spiralling of mergers of community banks with larger banks happening sooner. This apprehension will lead to more withdrawals of investments from community banks adding more and more pressure and creating more systematic risks in the US financial system and all banks.
The fear of recession in the US and Europe still looms large. While inflation is still expected to be high for a longer time, the US FED may still consider a 0.25 basis points (instead of 0.5 basis points) increase in their next Federal Open Market Committee (FOMC) meeting on Wednesday, March 22, continuing its hard hawkish stance on fighting inflation, which does not help the banks any further.
From a similar risk point of view, in contrary to US banks, the Indian banking system is considered much safer as the interest rates are well regulated by the Reserve Bank of India which have to give out more interest presently to investors than they are getting from their own investments in Government bonds etc. However, the US sentiments may create a negative impact on Indian banks too, and dampen their spirit.
Brent Crude prices lowered to USD 75 per barrel for the very first time since 2021 amidst this crisis which is positive news for the Indian economy (3rd largest importer of crude oil and about 80% of the requirement is imported). The tyres and paint companies will be the direct beneficiaries of the reduced cost of inputs due to the lowering of crude oil prices.
If the crude sustains around or below this price, it will help in reducing India’s trade deficit, and inflation and also ease pressure on the Indian currency.
Another vital development which further delves into the growing fear mindset of investors and the general public is the indication of rising gold prices in the world. People at large are withdrawing their money from banks and other unsafe investments and investing in gold which is lately seeing an upsurge in prices throughout the world. Last week the gold prices April future index rose from INR 55,000 (10g) to above INR 60,000. Globally, gold prices are now at around USD 2,000 per gram. This is somewhat an unusual scenario seen in the particular commodity price as it is considered the safest bet from historic times.
It looks like 2023 will be another year of almost no return in equities and the idea of buy and hold will no longer work for returns on investments in the Stock Market for a few years ahead. Even investments in mutual funds are not going to give any better substantial results. The overall trend is changing, and investors are now reluctant to buy the dips as no one knows where the right “bottom prices” will be. Trading in short-term or swing trades is the only way full-time traders/investors can look to make money from short time investments in Stock Market.
Disclaimer: The opinions expressed within the content are solely the author’s (not a SEBI registered advisor) and do not reflect the opinions and beliefs of the website or its affiliates. You 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.
