A global selling avalanche triggered by a crisis at a US-based niche lender had a debilitating impact in India on Friday with investor wealth plummeting Rs 1.36 lakh crore and the benchmark Sensex tanking over 675 points.
Investors panicked after Silicon Valley Bank (SVB), which funds start-ups, warned of huge losses, creating frissons of contagion that rocked banking stocks in India and pulled down the markets.
HDFC twins and State Bank of India (SBI) led the rout in banking shares as they crashed more than two per cent even as the Nifty Bank index fell 1.87 per cent.
Shares of SVB were halted on Friday in the US after tumbling as much as 66 per cent earlier in premarket trading. Parent SVB Financial Group said it was exploring options, including a sale, after its efforts to raise capital through a stock sale failed as a crisis at the tech-heavy lender rippled through global markets and hit banking stocks. The brutal rout in the lender’s stock which began on Thursday spilled over into other US and European banks, with the episode spreading concern about hidden risks in the sector and its vulnerability to the rising cost of money. The S&P 500 banks index dropped 4.2 per cent on Friday after a 6.6 per cent decline on Thursday, while the KBW Regional Banking index was down 5.3 per cent.
Europe’s STOXX banking index fell almost 5 per cent, set for its biggest one-day slide since March 2022, with declines for most major lenders, including HSBC, down 6.1 per cent, and Deutsche Bank, down 9.2 per cent.
The problems at SVB underscore how a campaign by the US Federal Reserve and other central banks to fight inflation by ending the era of cheap money is exposing vulnerabilities in the market. The technology sector has been hit hard in the past few months and stress has appeared in other corners of the market as rates rise. On Friday, the US economy added jobs at a solid clip in February, likely ensuring that the Federal Reserve will raise interest rates for longer. The crisis at SVB started earlier this week when the bank, which lends heavily to tech start-ups, launched a share sale to shore up its balance sheet after selling a portfolio consisting mostly of US Treasuries at a loss.
Market circles are fearing whether the crisis at SVB will result in a contagion. Besides, if there is a run on SVB, it may even go bankrupt which could adversely affect global risk sentiment. Kotak Mahindra Bank CEO Uday Kotak tweeted on Friday: ``Overnight developments in US banking: markets, analysts, investors underestimate the importance of financial stability for the balance sheet of a bank. When interest rates move up 500 bps from zero in a year, an accident was waiting to happen somewhere.’’
“The sell-off in US markets on Thursday was triggered by a crash of 60 per cent in SVB Financial. This impacted sentiments and banking stocks took a beating on concerns that rising interest rates might trigger loan repayment defaults. This is a US-specific issue and will not have an impact on Indian banking stocks. But the sentiment impact can be negative,’’ V.K. Vijayakumar, chief investment strategist at Geojit Financial Services said.