The collapse of Silicon Valley Bank (SVB) continued to roil the markets on Tuesday amid a mixed trend in banking stocks and mounting expectations that the US Federal Reserve will go for a moderate hike because of the stress in the banking sector.
A cautious stand by the US Fed — at its meetings on March 21 and March 22 — will mount pressure on the monetary policy committee (MPC) of the RBI to quickly press the pause button on rate hikes.
However, at its forthcoming meeting next month analysts expect a 25 basis point hike in the repo rate as retail inflation in India has crossed the upper bound of 6 per cent for the second consecutive month in February.
On Tuesday, various global banking and finance stocks continued to be in the red on fears of a possible contagion.
In the UK, HSBC Holdings whose subsidiary is acquiring SVB UK Ltd, was trading 0.48 per cent lower, while Standard Chartered Plc was down 1.45 per cent.
On the other hand, in the US, pre-market trading saw respite for some of the banking shares with First Republic Bank spurting up to 60 per cent, even as other regional banks and entities like Charles Schwab rebounded. On Monday, shares of First Republic Bank had crashed nearly 62 per cent whereas Western Alliance Bancorp had dropped over 57 per cent.
However, the collapse of SVB and Signature Bank which led to fears of a contagion has now created some optimism that the US Fed will at best lighten the pace of rate hikes, if not go for a pause. Yet, there are some observers who are not ruling out the possibility of the central bank giving a breather in the form of a pause in its two-day meeting beginning March 21.
“The RBI should not be tied to the Fed and should react to the Fed only if the spillovers of the current US financial sector turmoil affects the Indian financial system or the real economy. India’s inflation is above 6 per cent along with core inflation durably above 6 per cent. Hence, the RBI should hike rate by around 25 basis points keeping inflation as the primary aim,” Suvodeep Rakshit, senior economist, Kotak Institutional Equities, told The Telegraph.
“However, the RBI has possibly reached a point of wait-and-watch too since the lagged impact of the rate hikes will flow through the system over the next few quarters,’’ he said.
Sensex slump
The Sensex on Tuesday slumped nearly 338 points to close below the 58000 mark as the stress in the US banking system dragged down banking and finance stocks.
The 30-share Sensex fell 337.66 points or 0.58 per cent to end at 57900.19 after falling almost 517 points to a low of 57721.16 during intra-day trades.
Market circles said that apart from the failures of the two banks in the US which has led to contagion fears, investors continue to be apprehensive about more rate hikes from the Fed and the Reserve Bank of India (RBI) as retail inflation has stayed above the upper limit of 6 per cent.
“The underlying issue of the market is high-interest rates, which will continue to wreak havoc on the world economy. Yields will take time to moderate to the longterm trend given the hawkish monetary policy and high inflation,” Vinod Nair, head of research, at Geojit Financial Services said.
Start-up meet
The IT ministry will take up the woes of Indian start-ups impacted by the Silicon Valley Bank collapse with the finance ministry, Union minister Rajeev Chandrasekhar said on Tuesday.
The minister of state for electronics and IT said: “I am going to put together a suggestion list and give it to the honourable finance minister on your behalf, and work closely with the government of India as a whole.
