Domestic markets are expected open on a flat note on Monday with negative bias amid global uncertainty over the Silicon Valley Bank collapse. After the US Government reassured and came out with measures to protect depositors to withdraw money, US futures recovered sharply.
However, SGX Nifty at 17,420 (8.00 am IST) signals a gap down opening of about 30 points for Nifty, as Nifty futures at NSE closed at 17,452.55. Asian stocks are mixed with Hong Kong and Chinese markets are up even as Nikkei tumbled over 1.7 per cent. Australia’s ASX is also down by 0.72 per cent, but recovered from the day’s low. US futures made a strong recovery after the US move to protect SVB investors.
Fed moves on rates eyed
Most analysts said that domestic market will take cues from global markets in the short term.
“Until now the entire focus was on US inflation and labour market data to determine how much higher the Fed would raise rates and for how long it would keep the rates elevated. However, the recent Silicon Valley Bank (SVB) episode has brought a whole new dimension into focus, one of systemic stability,” said IFA Global Research Academy in a note.
Also read: What led to SVB failure and its impact on India
Despite the package depositors of SVB Bank, domestic analysts are still cautious. “Most of them are analysing how deep the problem is. Already there are talks, that several start-ups and SMEs back home are facing a financial crunch following SVB Bank’s collapse. Steps of the US and the Indian governments would closely be watched,” they added.
Edward Moya, Senior Market Analyst, The Americas OANDA, said, “At the end of the day, traders are seeing this cooling/hot payroll report as confirmation that Fed policy is restrictive and that the their tightening work is almost done.”
“If we didn’t have SVB’s failure and contagion risk the case for a half-point rate hike would be valid. The focus will fall on SVB contagion risks and Tuesday’s inflation report. As long as we don’t see a scorching hot inflation report, the Fed should continue with its quarter rate point hiking pace,” he said.
Also read: PNC, RBC interest in SVB cools as regulators seek rescue bids
Back home, experts believe the trend of foreign portfolio investors’ investments will be closely monitored. Their inconsistencies in the last few weeks keep market volatile, they added.
Focus on FPI behaviour
Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said an important feature of FPI activity is that there is no consistency in FPI activity.
“For instance, FPIs were buyers in the first half of February in financial services and sellers in the second half. Similarly, they were buyers in IT in the first half and sellers in the second half. In oil and gas, they were sellers in the first half and buyers in the second half. All data relates to February. This shows that their activity was not in response to the performance or prospects of these sectors,” he said. “A consistent trend is FPIs have been buyers in capital goods stocks. This explains the strength in the capital goods segment even in a weak market.”
Also read: FPI bearish bets on Nifty, Bank Nifty at the highest since June
Consolidation phase?
Analysts believe the domestic market is in a consolidation phase despite global gloom. Most believe Indian markets will move in a broader range with individual stocks facing higher volatility.
Ruchit Jain, Lead Research, 5paisa.com, said Nifty had corrected from the high of 18134 in mid-February and this time the index has corrected from 17800 level which indicates a continuation of the ‘Lower Top’ structure.
“The market structure will change only when this recent high of 17800 gets surpassed. On the other hand, the swing low of 17250-17300 continues to be a strong support for the short term. A breach of this support will result in a continuation of lower top lower bottom, else we could just see the index consolidating within this broad range of 17250-17800,” he said.
If one looks at the derivatives data, the recent pullback from 17250 to 17800 was majorly due to short covering as FII’s had trimmed some of their short positions which were short heavy. However, they formed some short positions again which is negative for the markets, he further said..
“Considering the above data, it seems that our markets could see some time-wise correction within this broad range,” he added.