Sensex sinks 700 pointsWhat’s bothering Dalal Street investors?

By Koustav DasIt was a bad start to the week for domestic markets, with benchmark indices falling sharply in early trade.

Both the S&P BSE Sensex and the NSE Nifty 50 slid over 1.1 per cent by 10:20 am. The Sensex tanked 700 points to 57,300 levels, while the Nifty fell below 17,000.

Even broader markets plunged sharply, reflecting sluggish investor sentiments and a sharp jump in volatility.

Here are key factors behind the Monday blues on Dalal Street

Fears of deepening global banking crisis

One of the primary reasons behind the weakness in domestic markets is weak sentiments among investors, triggered by fears of a deepening global banking crisis.

While analysts have said Indian banks are unlikely to face any impact from the ongoing turmoil in Europe and the US, investors have not been able to shake off concerns.

The latest saga in the banking turmoil came after a deal was brokered by the Swiss National Bank to rescue Credit Suisse. It involves top Swiss lender UBS taking over the troubled bank in order to save it from collapsing.

The deal has saved Credit Suisse from a complete collapse, but it has also fuelled concerns about the extent of the crisis that the 166-year-old bank was facing.

A few days ago, a host of US lenders had to announce support for First Republic Bank, which could have become the third US bank to collapse. It may be noted that the crisis initially started in the US after the collapse of SVB Financial Group’s Silicon Valley Bank.

US Federal Bank’s policy decision

Market participants are also worried about the upcoming policy review of the US Federal Reserve on Wednesday.

The US central bank has a tough task as its focus on containing high inflation has been jolted by the sudden failure of two banks, which seems to have triggered a contagion in Europe.

There is a high probability that the US Fed will go forward with a smaller rate hike of 25 basis points, compared to the early projection of 50 basis points.

Higher interest rates are one of the factors that contributed to the failure of two banks in the US.
This is why Goldman Sachs predicted that the Fed will pause rate hikes in March and resume later to shield banks for the time being.

Therefore, the outcome of the Fed’s monetary policy will be crucial and investors are hoping for a favourable outcome.

FIIs continue to sell

While these are the primary reasons behind the weakness in domestic markets, another factor that has hurt Dalal Street is the sustained outflow of foreign funds.

Foreign institutional investors have been selling more than they are buying amid weak global sentiments, and this is hurting valuations in the domestic market too.

FIIs had extended their selling streak to a seventh straight day on Friday, offloading shares worth Rs 1,767 crore on a net basis.