Markets next week; Amid banking turmoil, Fed and BoE policy to dictate sentiment

CurrencyVeda Analysis on International Trade

The current week saw a mixed performance from the Indian market, with the upheaval in the world’s banks primarily coming from the US and Europe. On the week of March 13 to March 17, both the Sensex and the Nifty both fell by around 2%. Sensex is trading below 58,000 at the moment, and the Nifty 50 is hovering around 17,100. The policy meetings of the US Federal Reserve and Bank of England will have a significant impact on the market’s mood in the coming week notwithstanding the upheaval in western banks.

The Sensex ended the trading day on Friday at 57,989.90, up 355.06 points or 0.62%. At 17,100.05., the Nifty 50 increased by 114.45 points, or 0.67%. While BSE Bankex increased by more than 541 points or 1.2%, Bank Nifty increased by approximately 466 points or 1.2%.

Domestic equities began the week that ended on March 17 down due to banks’ fears of contagion following the failure of Silicon Valley Bank and Signature Bank, but they recovered in the final two trading sessions as lenders like Credit Suisse and First Republic Bank received some liquidity lifelines, which calmed the panic selling. Also, numbers on inflation that were better than expected helped to improve the mood. Gains were however limited by a steady outflow of foreign currency.

In response to the performance over the past week, Vinod Nair, Head of Research at Geojit Financial Services, stated: “Domestic indexes moved in lockstep with international markets, which took a break towards the end of the week in anticipation of some respite from the turbulence in the world’s banks. On news of a rescue package for the struggling First Republic Bank and assistance given to Credit Suisse by the Swiss Central Bank, which would allay worries about the soundness of the global financial system, global stocks reversed their downward trend.”

Also, as Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities said, the US and European bank crises had an impact on how the world’s equities markets traded. These events on a worldwide scale put pressure on the Indian markets. As a result, the Nifty-50 and Sensex-30, two important domestic benchmark indices, declined over the week. The bulk of the sectoral indexes as well as broader indices like the BSE Midcap and BSE Small-cap showed negative returns this week. The trade deficit was kept in check by slight increases in exports and imports (over January 2023) while India’s CPI inflation in February 2023 slowed to 6.44%. The latest banking crisis contributed to a steep correction in crude oil prices this week. In comparison to the previous week, the yield on the US 10-year Treasury was lower. The European Central Bank continued to tighten policy while also raising interest rates by 50 basis points.

This week, the Nifty 50 fell by 312.85 points or 1.8%, while the Sensex fell by 1,145.23 points (1.93%).

Markets were under pressure and lost about 2% last week, according to Ajit Mishra, VP of Technical Research at Religare Broking, as a result of subpar global cues. The week started off with a bad tone that only got worse, but a rally in the last session helped to reverse some of the losses. The participants had to be alert because the American banking crisis continued to take the stage. Also, the ongoing outflow of foreign funds increased concerns. The benchmark indices, Nifty and Sensex, eventually reached settlement values of 17,100.05 and 57,989.90, respectively. As a result of the pressure, the banking, finance, auto, and IT industries all saw losses between 1% and 4%. The broader indices also experienced a decline and each dropped more than 2%.

What can we anticipate for the upcoming week?

“Easing US inflation provided confidence that the Fed would not opt for a punitive rate hike of 50 basis points and would possibly contemplate taking a pause during the March meeting,” Nair added. Investors are increasingly turning to safe havens like the dollar and gold as a result of persistently negative market indicators, while FIIs are pulling money out of domestic markets as a result of the weakening of the Indian rupee. All eyes will be on the US Fed and Bank of England next week when they hold their policy meetings in light of the ECB’s 50 basis point rate hike.

Also, “market participants will attentively watch-out for the Federal Reserve policy announcement next week,” Chouhan continued.

Mishra emphasised that the upcoming FOMC meeting, slated for March 21–22, would be the main topic of discussion in the absence of any significant domestic events. Also, the movement of oil and the trajectory of foreign flows will be watched closely for clues. “Markets may take a pause initially, but the upside also seems capped,” he continued. The 17,250–17,400 area could present challenges for the Nifty, while the 16,600–16,800 area would offer the necessary buffer in case things get worse.

Because there are varied trends across sectors, Mishra advised traders to stick to their stock-specific strategies and concentrate on overnight risk management.

Disclaimer: Currency Veda does not endorse the opinions or suggestions expressed above by specific analysts or brokerage firms. Before making any financial decisions, we suggest investors to consult with licenced professionals.