– By Rahul Shah
Equity benchmark index extended losses for the third consecutive week as investors turned cautious after the government hiked securities transaction tax (STT) on futures and options contracts, while lingering concerns of contagion in the global banking sector weighed. Depreciating rupee against the US dollar and fresh foreign fund outflows also hit investor sentiments. Moreover, the Government passed bill to Tax higher annual premium on Insurance and announced Debt Mutual Funds to Tax on short-term capital gain which had a negative impact in the market. Insurance, mutual funds, banking and metal stocks were major losers. However, select IT stocks advanced after Nasdaq listed Accenture announced better than expected quarterly results. Sensex slipped 463 points to close at 57527 or 1% while Nifty dropped 155 points or nearly 1% to close at below 17k level or 16945. Nifty and Sensex declined nearly 4% in the three consecutive week.
The government has increased STT on selling options by nearly 25% to 0.062% from 0.05% on futures and options contracts. The hikes would be effective from 1 April.. Shares of Asset Management Company slipped to fresh 52-week lows on Friday, after the Government of India proposed investment in mutual fund; below 35 per cent in equities, which shall be considered as short-term capital gains. Also, debt funds invested for a period of over three years will be eligible for long-term capital gains tax (LTCG) and their gains will be taxed at 20 per cent with indexation benefits.
Market will focus on US and Europe GDP data to be released next week. On the domestic front, auto monthly sales data and March series F&O expiry will be in focus for next week. More importantly, the market will be keenly watching the US and European Central Bank commentary after fears of a new financial crisis in Deutsche Bank. Yesterday, European markets declined 2% as fears of a global banking crisis fuelled another rout in European banking stocks on account of Deutsche Bank’s shares that fell by as much as 14 per cent after a sharp jump in the cost of insuring its bonds against the risk of default. Credit default swaps on Deutsche Bank’s euro, senior debt surged to the highest since they were introduced in 2019. Deutsche Bank shares tumbled as investors looked for the next trouble spot in the aftermath of Credit Suisse’s collapse and forced sale to UBS last weekend and the earlier collapse of Silicon Valley Bank and two other U.S. lenders. Top US regulators said yesterday that while some banks are coming under stress the overall financial system is still sound, seeking to reassure depositors and investors that are rattled by recent bank failures. US Dow Jones recovered over 500 points from the intra-day low on Friday after the US Treasury Secretary Janet Yellen told US House that the regulators would be prepared for further steps to protect the banking system if warranted. Market hopes that the US Fed to pause hike in interest rate in the next policy meeting to stabilize the banking sectors.
The US Federal Reserve on Wednesday raised interest rates by a quarter of a percentage point, but indicated it was on the verge of pausing as it further increases the borrowing costs amid recent turmoil in financial markets spurred by the collapse of two U.S. Bank. Bank of England hiked interest rate by 25bps and Swiss National Bank has increased by 50bps interest rate. But, there was dovish commentary by most of the European and US central bankers. Expectation that the both US and European Central bank to pause hike in interest rate in the next policy meeting. As a result, US 10-Year bond fell to 4-month low at 3.37% declined 100bps from the recent high of 4.07%. US 2-Year bond fell to nearly 5-month low and declined 130bps at 3.76% from the just two week before was 5.07%. There was a difference between the 2-year and 10-year bond that came down to 40bps while earlier it was 100bps difference. It means reduced short term pain after significant decline in 2-year bond yield. It has indicated that the US Fed is likely to hold a hike in interest rate amid recent turmoil in financial markets and fall in 2-year Yield.
Nifty technically has formed a Bearish candle on daily and weekly scale and has been trending lower on account of selling visible at bounce. Now, till it holds below 17000 zones weakness could be seen towards 16850 and 16666 zones, while on the upside hurdles are placed at 17071 and 17171 levels.
(Rahul Shah is the Senior Vice President, Group Advisory Leader-PCG, Broking & Distribution at Motilal Oswal Financial Services