By Rahul shah
Hawkish commentary by the US Fed chairman and concern of troubles at US Silicon Valley-based lender SVB Financial Group pulled down Indian bourses nearly 700 points to close Sensex below at 60k level. Broad base selling was seen in the market in line with weak trends globally. Heavy selling was seen in financial, banking, IT, realty and capital goods shares triggered by weak Asian, US and European markets. Moreover, the market took a cautious approach ahead of US non-farm payroll data and jobless claim data that release on Friday and the probability of a sharper rate hike by the US Fed in the next policy meeting. Friday saw the biggest single-day loss of the past week with Sensex and Nifty 50 shedding around 1% each which resulted in Nifty slipping by 1% or 181 points to close at 17413. Sensex nosedive 674 points or 1.1% to close at 59135. India Vix climbed up by 10% to close at 13.50 against the previous week’s close.
While the majority of the sectors witnessed selling, some of the niche sectors like power, sugar and capital goods were in limelight this week. Power and utility companies saw a lot of buying interest as demand for power peaked out in the month of February and expectations of rising power tariffs. In fact, power demand and consumption are expected to report double-digit growth for the March quarter as IMD predicts heat waves across India that will lead to the use of more electricity, even as industrial usage is already scaling new highs. Sugar stocks rose following a rise in global sugar prices as concerns are mounting with regard to changing weather patterns which along with logistic issues is likely to impact sugar supplies in Brazil. On the other hand, the Indian government is likely to allow higher limits on sugar exports. Capital goods and infra are too finding favour among investors amid early signs of revival in the capex cycle. Thus sectoral churn is continuously taking place in the market and is likely to continue till uncertainties loom.
This week will be crucial on the global front as the US CPI number will be released on Tuesday it could also influence the Fed rate decision. Further, the ECB meeting would be a key event to watch out for this week on Thursday. On the domestic front, Feb inflation data would be released on Monday. Thus, we expect volatility to continue in the near term.
Silicon Valley Bank’s (SVB) Collapse, the biggest bank failure since 2008, dampened global sentiment. There was a 60% crash in SVB stock price. This had a ripple effect on other banking stocks with worry that the other banks too might be struggling with liquidity and rising interest rate situations. This might further aggravate the crisis. Moreover, US Fed Chair Jerome Powell statement that the central bank was prepared to increase the pace of its tightening if inflation and jobs data stayed hot. He later clarified no decision had been made on the size of the March hike. The selloff deepened after regulators shut down Silicon Valley Bank, marking the largest bank failure in the U.S. since 2008. The yield’s two-day slide went just under 50 basis points, its biggest since 2008. Not even remarks from prominent voices that a systemic financial crisis is unlikely were able to appease investors. Traders rushed to the safety of bonds, which also soared after jobs figures offered a glimmer of hope that the Fed may refrain from accelerating its pace of rate hikes. As risk assets got pummeled, the US stock benchmark headed toward its worst week since September (down 4-5%). Wall Street’s so-called “fear gauge” spiked, with the Cboe Volatility Index hitting 29 at one point, the highest since October and climbed up by 30% this week.
Back home, expects volatility in the domestic market to continue till stability in the global market. The collapse of the US-based Silicon Valley Bank may not be a major impact on the domestic market due to Indian equity is much more stable than global peers. Better than expected January IIP, stable oil price and the higher government expenditure scheme to support the Indian bourses.
Nifty technically has formed a bearish candle on the weekly scale and it has formed a red candle with a long lower shadow on the daily scale which indicates support-based buying. Now, Nifty needs to hold above 17442 for a move towards 17535-17620. Supports are placed on the lower side at 17350-17200
Cummins – CMP Rs 1680 – SL Rs 1650 – Target Rs 1750
ABB- CMP Rs 3377 – SL Rs 3330 – Target Rs 3500
ABB has given a breakout of the falling supply trend line and the momentum oscillator is holding well above the 70 mark. The overall capital goods sector is looking strong which will support higher levels. Buy ABB with a stop loss of Rs 3330 and a target of Rs 3500.
(Rahul shah is Senior Vice President, Group Advisory Leader-PCG, Broking & Distribution at Motilal Oswal Financial Services