Nifty may test 17,000 levels as SVB implosion stirs the ghosts of 2008

Selling pressure seen in banking, IT, and new-age stocks; foreign investors expected to be cautious

Seeing that the rapid unravelling of Silicon Valley Bank (SVB) is eerily reminiscent of Bear Stearns’ 2008 implosion, domestic markets are likely to tread lower over the next few sessions. Experts don’t rule out a fall in the National Stock Exchange Nifty50 Index to 17,200 and then to 17,000 levels in the near term.

After dropping a per cent each in the previous two trading sessions, the Nifty closed below its 200-day moving average at 17,413.

The 200-day moving average is a long-term trend indicator. Usually, a fall below the indicator is bearish and a rise above it, bullish. The S&P BSE Sensex last closed at 59,135.

“We never knew the unintended consequences of higher rates — this (SVB swoon) is one of them. These events will keep happening and worry the markets. If there is more bad news coming from the US markets, it will spook Indian markets as well,” says Andrew Holland, chief executive officer, Avendus Capital Alternate Strategies.

“The Nifty failed to cross the crucial hurdle at 17,800 last week and again reached closer to the previous swing low i.e., 17,255 levels. And, with a fresh breakdown in the US markets, we expect the negative tone to continue. Technically, the Nifty has been trading in a declining channel and the lower band of the channel exists around 17,000, which could act as a support,” writes Ajit Mishra, vice-president, technical research, Religare Broking, in a note.

In case of any rebound, participants can look for shorting opportunities around the 17,600 zone, adds Mishra.

Foreign portfolio investors’ (FPIs) attitude towards domestic equities is also likely to be bearish in the near term.

“The collapse of SVB in the US has impacted market sentiment. The FPIs are likely to be cautious in their approach in the days to come,” says V K Vijayakumar, chief investment strategist, Geojit Financial Services.

Investor sentiment has been hit hard by the meltdown of the storied Wall Street investment bank, stoking fears that more lenders could be hit by a quickening in interest rate hikes by the US Federal Reserve (Fed).

Global markets reeled on Friday as investors fretted over the health of the US banking system and risks of a wider contagion after shares of SVB crashed 60 per cent in a single session.

Experts say the impact on Indian equity markets due to the failure of SVB will be threefold.

One, there will be pressure on banking stocks amidst fears of Indian banks being possibly impacted by the contagion effect of the troubles in the US banking system.

Two, information technology (IT) stocks might see selling as Indian IT companies servicing technology (tech) companies in the US or those with exposure to SVB may see their contracts getting renegotiated.

Three, there could be an acceleration in FPI selling.

New-age companies, too, will witness selling pressure, given SVB’s links with the start-up ecosystem. For Indian start-ups, the outlook is stressful as the rising cost/drying of funds, coupled with an inflation-induced tightening of consumer demand, means their frothy valuations are increasingly harder to justify.

The firm is a crucial lender to American start-ups. It is the banking partner for around half of the venture funds-backed tech and health care start-ups that were listed in the US in 2022.=Its cave-in has sent shockwaves through a key piece of the cryptocurrency industry’s financial plumbing. Coming fresh on the heels of the sudden collapse of cryptocurrency-focused bank Silvergate Capital, the SVB crisis has set off intense speculation about the stability of other lenders.

Last week, SVB became the first major US lender to fail in more than a decade amidst a cash exodus and an inability to raise capital. US regulators stepped in and appointed the Federal Deposit Insurance Corporation as receiver.

Banks in the US are dealing with the twin blows of suffering losses in their bond portfolios due to higher interest rates and businesses pulling out large sums of money.

“Lehman Brothers was an international bank. This is a local one. Their problems are largely on account of long-dated bonds. In most economies, banks are rarely allowed to fail. There is a fear that this could be another Lehman moment impairing investor confidence,” says U R Bhat, co-founder, Alphaniti Fintech.

Analysts say the trajectory of markets will depend upon how quickly the US authorities prevent this from unspooling into a larger banking crisis in the US and how much/little the Fed will hike in its next monetary policy. A section of the markets is speculating that the Fed cannot afford to go for aggressive rate hikes and may tone down its rhetoric. As a fallout of the SVB crisis, if the Fed slows the pace of rate hikes, equity markets could get a leg-up, observe experts.