No breather for stock markets as US bank crisis weighs on sentiment

Equity indices fell for the fourth consecutive session as contagion fears after the failure of three US lenders continued to rattle investors. Both Sensex and Nifty hit fresh five-month lows.

The Sensex ended the session at 57,900, following a decline of 338 points, or 0.6 per cent; the Nifty50 finished at 17,043, down 111 points, or 0.7 per cent. Both indices are down more than 4 per cent in the past four trading sessions to their lowest levels since October 13, 2022.

The Nifty50, having slipped more than 9.4 per cent from its all-time high of 18,813 on December 1, is on the cusp of a “correction”. A fall of more than 10 per cent from recent highs is considered a correction.

Most Asian stocks tumbled as the fears triggered by the collapse of Silvergate Bank, Silicon Valley Bank, and Signature Bank gripped the markets, even as the US government moved to stabilise the financial system.

Wall Street’s main indices, on the other hand, climbed in early trade after consumer prices in the US rose in line with expectations, bolstering bets of a smaller interest rate hike by the Federal Reserve at its next meeting. Data showed that US Consumer Price Index (CPI) rose 0.4 per cent in February versus 0.5 per cent a month ago. On a yearly basis, it rose 6 per cent last month, compared with 6.4 per cent in the previous month.

Despite the US authorities bailing out SVB, the failure of Signature Bank in the US weighed on investor minds. Emergency US measures to shore up banks by giving them access to additional funding and assurances from the authorities failed to dispel investor worries in India and other Asian markets.

The crisis in the US banking system has led to speculation in some sections of the market that the Federal Reserve will pause its hike cycle and may even cut rates. The Fed chief had warned earlier that any decision on hikes will be data-dependent. Moreover, some Fed officials voiced in favour of keeping the rates high till the Fed achieved its target of 2 per cent inflation.

The Fed is on a sticky wicket as it has the difficult task of controlling inflation but also bringing stability to the banking system. Apart from the US consumer price report, Eurozone rate decision and industrial production data, initial jobless claims, and Janet Yellen's testimony before the US Senate Finance Committee will be tracked by investors closely.

"The markets are likely to remain under pressure in the near term, as the US banking crisis deepens with more and more US banks coming under the cloud. Now all eyes will be on the Fed’s decision on interest rate in its upcoming meeting amid the ongoing banking turmoil,” said Siddhartha Khemka, head-retail research, Motilal Oswal Financial Services.

Ajit Mishra, VP-technical research, Religare Broking, said there could be some breather after the recent slide. "But the upside seems capped, too. Meanwhile, participants should stay light and focus more on risk management. "

More than two-thirds of Sensex constituents declined. TCS fell 2 per cent and contributed the most to Sensex losses. Reliance Industries hit a 52-week low intraday and ended the session 0.4 per cent lower. The Nifty IT index fell 1.7 per cent amid fears that the banking crisis in the US will impact demand for their services.

Overall, market breadth was weak, with 2,410 stocks declining and 1,129 advancing.