Markets next week; Amid banking turmoil, Fed and BoE policy to dictate sentiment

Indian market witnessed a mixed performance in the current week with US and Europe banks’ turmoil majorly impacting sentiments globally. Both Sensex and Nifty have tumbled by nearly 2% between March 13 to March 17. Currently, Sensex is below 58,000 and the Nifty 50 is breathing around 17,100. In the coming week, amidst the chaos in western banks, the US Federal Reserve and Bank of England’s policy meeting will also play a major role in dictating the mood of the market.

On Friday, Sensex closed at 57,989.90 up by 355.06 points or 0.62%. Nifty 50 rose by 114.45 points or 0.67% to end at 17,100.05. Bank Nifty rallied nearly 466 points or 1.2%, while BSE Bankex surged by over 541 points or 1.2%.

Domestic equities started the week that ended on March 17 in red due to banks’ contagion fear after the collapse of Silicon Valley Bank and Signature Bank but eased in the last two trading sessions as some liquidity lifeline was given to lenders like Credit Suisse and First Republic Bank which calmed the panic selling. Also, better-than-expected inflation data contributed to lifting sentiment. However, consistent foreign funds outflow capped the gains.

Talking about the current week’s performance, Vinod Nair, Head of Research at Geojit Financial Services said, “domestic indices followed suit in-line with global markets which took a breather towards the end of the week in hopes of relief from the global banking turmoil. Global equities reversed their selling streak on reports of a rescue package for the beleaguered First Republic Bank, along with an aid provided to Credit Suisse from the Swiss Central Bank, which would soothe concerns over global financial stability.”

Further, Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities highlighted, global equity markets reacted to the crisis in the US and European banks. Indian markets were under pressure from these global developments. Accordingly, key domestic benchmark indices Nifty-50 and Sensex-30 were down during the week. Broader indices including BSE Midcap, BSE Small-cap, and majority of the sectoral indices too posted negative returns in this week. On the economy front, India’s February 2023 CPI inflation moderated to 6.44% and trade deficit remained in check with marginal increases (over January 2023) in exports and imports. Crude oil prices corrected sharply this week amid the recent banking crisis. The yield on the 10-year US Treasury was lower as compared with last week. Meanwhile, the European Central Bank raised interest rates by 50 bps and continued with its policy tightening measures.

This week, Sensex plunged by 1,145.23 points or 1.93%, and Nifty 50 dipped by 312.85 points or 1.8%.

According to Ajit Mishra, VP – of Technical Research, Religare Broking, markets traded under pressure for the second consecutive week and lost nearly 2%, following weak global cues. The tone was negative from the beginning, which deteriorated further as the week progressed however rebound in the final session trimmed some losses. The US banking crisis remained at the center-stage and that kept the participants on their toes. Besides, the continuous outflow the foreign funds added to worries. Eventually, the benchmark indices, Nifty and Sensex, settled at 17,100.05 and 57,989.90 levels respectively. Meanwhile, the pressure was visible across sectors wherein banking, financials, auto, and IT shed in the range of 1%-4%. The broader indices too witnessed a fall and lost over 2% each.

What to expect next week?

Nair said, “Easing US inflation provided confidence that the Fed would not opt for a harsh rate hike of 50 bps and might even consider taking a break during the March meeting. Consistently unfavourable signs in global markets are encouraging investors to turn to safe havens such as the dollar and gold, while FIIs are withdrawing funds from the domestic market in response to the Indian rupee’s depreciation. Considering the 50 bps rate hike by the ECB, all eyes will be on the US Fed and Bank of England, which are set to hold their policy meetings next week.”

Also, Chouhan added, “market participants will keenly watch-out for next week’s Federal Reserve policy decision.”

Mishra pointed out that in absence of any major domestic event, the focus would be on the upcoming FOMC meet scheduled on March 21-22. Besides, movement in crude and trend of foreign flows will also be in focus for cues. He added, “Markets may take a breather initially however the upside also seems capped. Nifty could face hurdles around the 17,250-17,400 zone while the 16,600-16,800 zone would provide the needed cushion, in case the situation deteriorates further.

To traders, Mishra said, “Since we’re seeing a mixed trend across sectors, traders should continue with stock-specific approach, with a focus on overnight risk management.”


Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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