Fear grips D-Street: Markets hit five-month lows over SVB crisis

Sensex, Nifty plunge 1.5% amid contagion fears

India’s benchmark indices fell to their lowest levels in five months on Monday as the collapse of Silicon Valley Bank (SVB) and two other US banks continued to weigh on investor sentiment, even as regulators tried to contain the damage. Equity markets across the world declined over contagion fears, while safe-haven assets such as bonds and gold advanced.

The Sensex slumped 897 points, or 1.5 per cent, to end the session at 58,238, its lowest close since October 14. The index is now down 8 per cent from its record high of 63,284, logged on December 1. The Nifty50 index also fell 1.5 per cent, or 259 points, to close at 17,154 -- the lowest since October 13. Banking stocks continued to underperform, with the Bank Nifty index dropping 2.3 per cent. The India Vix index shot up 21 per cent to 16.22, indicating nervousness among investors.

On Monday, foreign portfolio investors sold shares worth Rs 1,547 crore, according to provisional data from the exchanges. They had sold shares to the tune of Rs 2,061 crore on Friday.

Safe-haven demand saw gold prices hit a four-week high, while the 2-year US Treasury yield fell to its lowest level since early February at 4.26 per cent, as against 4.8 per cent last week. In the domestic markets, gold prices firmed up 2.3 per cent to Rs 56,740 per 10 grams.

In early trade on Monday, the Sensex had gained 375 points as the US bank crisis stoked hopes that the Federal Reserve would apply brakes on the interest rate increase. However, the optimism was short-lived as investors tried to assess the fallout of the collapse of SVB, Signature Bank, and Silvergate Bank, and concerns about the US inflation numbers, which will be released this week.

Federal Reserve Chairman Jerome Powell had earlier indicated that rate hike decisions would be data dependent. 

Experts said the banking crisis in the US was a clear manifestation of the dilemma all central banks were going through -- controlling inflation without triggering a recession in the process.

Indian equity markets were already reeling under pressure over concerns about expensive valuations, tight monetary conditions, and the fallout of US-based short seller Hindenburg Research’s report on the Adani group.

“Investors, especially in the western world, are still not clear as to how widespread are the issues that brought down SVB. It will take a few weeks for them to figure out how the rise in interest rates will crush bond portfolios. Domestic investors are not particularly spooked but foreign investors are. Our economy is strong and that will lend the markets a degree of support. But even if we are in good shape, foreign investors are jittery because of the turmoil in western markets; it will lead to a degree of volatility,” said Saurabh Mukherjea, founder of Marcellus Investment Advisors.

Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services, said there would be elevated volatility until clarity emerged on the extent of the crisis. “The US Fed’s emergency meeting to control the damage would be crucial for the markets. Apart from this, the release of India and US inflation data along with ECB meetings during the week would be keenly watched,” he said.