SVB, 2007 REDUX OR AN ABERRATION?

In a very shocking development in the USA one of the biggest banks, namely the Silicon Valley Bank has collapsed. The US regulators have shut the bank down Friday. The bank was involved in funding a lot of start ups in the California region and had funded many other start ups through funding to VCs. This collapse is reminiscent to what happened in 2007-2008 in the sub prime lending era. What led to this collapse? 

As we all know US is a business-friendly country. Funding is available at very low interest rates which helps businesses grow rapidly and exponentially. Many a times risk is overlooked in pursuit of rapid growth and becomes the undoing for the entire economy.

During the Covid period when entire business activity across the world came to a standstill, many countries took to fiscal stimulus to improve industrial activity as well as provide impetus to growth. The US also provided a fiscal stimulus albeit by providing cash assistance to its citizens. In pursuing growth, the US resorted to printing money and distributing it to all and sundry. The easy availability of money meant people had more expendable surplus, which, went to markets as well as banks, setting investment products like equities, precious metals et all on fire.

Silicon Valley Bank also had big influx of money in the form of deposits. The bank chose to invest in relatively safer bet, that is bonds. The bank estimated that bond yields in the longer run would remain stagnant and this is where the problem started. They say "never put all eggs in one basket", the SVB however. invested around 80% of its deposits in long term bonds expecting yields to remain steady. The yields could have been steady but the Russia-Ukrain war threw the world in a spiral of rising inflation. The US along with the entire west sanctioned Russia endangering their own economies more than Russia. Inflation rose to unprecedented levels in the US prompting the Fed to act tough on the interest rate side. The fastest and easiest way to tackle inflation was undertaken and we saw a series of interest rate hikes. This hike had an impact on the equity markets as well as the bond markets. The equity markets in the US remained range bound in the series of interest rate hikes and bond markets remained volatile while yields for long term bonds went up. As interest rates rose liquidity was sucked out of the system. Banking system also bore the brunt of this liquidity shortage along with start up ecosystem. The Silicon Valley Bank had to cater to rising demand by the depositors, which it tried to cater to by selling its long term investment in bonds. The bond yield, however had shot up due to higher interest rates resulting in losses when the bank sold its portfolio. The bank lost over $1 bn in this transaction and depositors were requested not to withdraw their deposits. The bank is now well and truly under control of the regulator and there may be some more bad news in this context. The financial world needs to brace itself for aftershocks. We may indeed be on the brink of a recession and the Silicon Valley Bank might be the first casualty of the impending doom.

Week Ending 10th March 2023

Dear patrons, the preceding week was a truncated week on account of Holi, the festival of colors. However, markets saw only one color and that was red. As was indicated in the previous blog Nifty faced stiff resistance around 17800 and retreated towards 17400. The path forward for the month looks a bit tricky and it looks like a herculean task for the Nifty to cross 17800.

The main reason for the fall in Indian markets was the economic unrest around the western world. US Fed chief sees more tightening in future with sharper rate hikes. The US economy is grappling with declines in consumer demand and rising inflation. Rise in inflation is being tackled by increase in interest rates which in turn slows economic growth. Since the US is the biggest consumer in the world any slow down there hampers the global economy. 

India on the other hand is doing exceedingly well. IIP data was released Friday and it saw a jump by 5.2% YoY. This augurs well for the Indian economy and in turn the Indian markets. Over the period of next decade or so India is slated to be among the top 3 economies of the world with a GDP exceeding $10 tn. The current scenario, however, is a dampener in the sentiment and may take time to straighten things out.

Let's now shift focus to the Indian indices. Nifty had a fantastic closing last Friday and managed to add some more gains Monday. Midweek session onwards there was rise in volatility and we witnessed selling across the market breadth. Nifty ended the week around 17400 gaining half a percent or so over the week.

As we can see Nifty could not manage to cross its 100 EMA around 17800 and took a sharp U turn. Nifty is currently trading in a zone where we can't see an immediate support on daily charts. The picture becomes a bit grim if we look at the monthly charts below.

On the monthly charts, Nifty has completed its 3rd wave up and is likely to commence its 4th wave down. The first target for Nifty in the event of fall comes around 16600 and further selling may take it down to 15600-15500 band. The markets are looking jittery and may lose ground swiftly. 

Coming to BankNifty, the situation looks dicey for BankNifty. It failed to sustain above 41500 and saw sharp down move. 

BankNifty has completed its 4th up wave and is poised to move down. BankNifty may move towards 39000 and failing to take support around these levels it may slide towards 37500-37200 range.

Falls in the markets are always swift, traders need to be cautious and nimble footed. As long as Nifty remains below 17800 mark traders should follow sell on rise strategy. 

In the meanwhile, as always keep accumulating good quality stocks in every dip. Staying invested is rewarding over long period of time.

"Courage taught me no matter how bad a crisis gets ... any sound investment will eventually pay off." — Carlos Slim Helu

P.S.: This communication is for educational purpose only and does not recommend buying or selling any stock or index. Trade at your own risk.

Week Ending 3rd March 2023

Dear patrons, over the last month or so we have witnessed a roller coaster ride in the Indian markets. The markets have been topsy turvy for close to a year now and there seems to be no reprieve from volatility on account of global economic turmoil.

Indian markets started the week on a somber note. The preceding week had seen a fall of around 2.5%. Opening couple of days saw the Nifty consolidate around the 17200 mark and it remained rangebound in the range of 17450 to 17300. Friday, however, saw a strong bout of buying and Nifty managed to cross the 17500 barrier and closed positive by more than 1.5%, closing above the crucial 200 EMA. There is a tug of war going on among DII and FII. The FIIs have been sellers for most part of the week however, the DIIs have emerged as a force to reckon with, matching FII selling with almost similar amount of buying.

The big buying figure by FIIs is on account of Rs. 15000 crore stake acquisition in 4 Adani group companies. The Indian Rupee has managed to gain some lost ground against the USD over the last week. Though not a substantial gain, INR has shown some strength. 

As we can see in the above chart Nifty has completed its 5th wave correction. It looks poised for an up move towards 17800. Resistance around 17800 may be stiff and hard to overcome. If Nifty manages to close past 17825, move towards 18300 is on the cards and Nifty may sail towards it in a jiffy. 

As far as BankNifty is concerned, it has managed to close above its 100 EMA. BankNifty is in its 4th up wave and is likely to move towards 42500 in this series. If and when BankNifty reaches 42500, it will be time to be cautious on it.

In the meanwhile, accumulate good quality stocks in every dip. The markets are presenting a good opportunity for short term trades to be executed.

Long term Indian markets look to be in a bull phase and investments should be rewarding. Till the time geopolitical event take center stage the markets may remain volatile and present opportunities in both directions. Traders need to be nimble footed and cautious.

Happy Investing!!!

P.S.: This communication is for educational purpose only and does not recommend buying or selling any stock or index. Trade at your own risk.

Week Ending 16th July 2021

Markets were in a buoyant mood over the last week. Indian bourses started the week a tad below 15700 but soon shrugged off the negative bias and moved upwards. The upward trend continued for the next four days with the markets closing the week clocking an all time high on the Nifty.

The markets look well shaped to move further upwards and cross the critical 16000 levels on the Nifty. The pic below indicates that the Nifty has closed just above its resistance and should have enough legs to move towards 16200.

Good quality large and mid caps look good and attractively priced. Try to accumulate this stocks on regular intervals.

Stay Invested!!!

Happy Investing!!!

Week Ending 2nd July 2021

Dear Patrons; the week gone by started on a positive note; the indices on the Indian bourses made a record high on the first trading day of the week. The markets were; however; unable to sustain the rise and fell off from the highs to end in the red on four out of the five sessions. Friday also saw a somber opening but the bulls gathered momentum as the day progressed and the markets ended the session on a positive note.

Markets were mostly driven by global news flow last week. Domestically we are doing fine. The second wave of the pandemic looks under control. More places are opening up for more time. Domestic consumption looks on the rise as is evident from the auto sales numbers. Globally also the situation related to the pandemic is under control and economies globally are trying to gather momentum. The markets, however, as is their habit were looking forward towards interest rate increase in the US in 2022 and were on a selling mode.

On domestic front Reliance AGM acted as a dampener for the markets. A big ticket event which was not good enough for the markets to move up.

As can be seen from the above chart, Nifty looks to have bottomed out for the coming week. Targets of 16100 are visible on the Nifty. The Vix also indicates strength in the markets. Indices should make new high in the coming week and sustain around the 16000 mark on the Nifty.

Banks, private as well as PSUs, should be in the reckoning for the next week, along with oil and gas sector. One should be accumulating good quality banking stocks in each fall.

FMCG should also in the watchlist, as the sector looks to be gaining once the lock downs are over.

Stay Invested!!!

Happy Investing!!!

Week Ending 18th June 2021

 Dear patrons, the week gone by did not have much to cheer for the investors. Markets lost considerable ground albeit to regain at the fag end of the last trading session. The recovery though looks like driven by short covering more than fresh buying; which may be an indicator to more fall in coming days.

Markets were waiting for some trigger after a lack luster week. The Federal Reserve meeting happened to be trigger for the markets. The FED maintained status quo in the interest rates but hinted at increasing rates earlier i.e. in 2023 rather than in 2024 sated previously. The reason behind increase in interest rate is rise in inflation; which is at historic high. Although 2023 is a fair distance away, the markets got spooked by this announcement and resorted to sell off.

Locally there was no news flow to dampen or cheer the spirits of markets. The benchmark indices were mostly driven by global events and actions. Barring the exception of frontline IT stocks every other sector bore the brunt of a sharp sell off. 

As we can see in the picture above Nifty closed just around support levels. Coming week being the monthly expiry, is expected to be volatility. We may witness more fall on indices. Nifty has strong support around 15000, which is a fair distance away from current levels. 

Time looks ripe for accumulation of good stocks in each fall. Every fall in the markets is a God send opportunity to accumulate stocks. We would recommend to buy good quality stocks in this fall.

Stay Invested!!!

Happy Investing!!!

Week Ending 11th June 2021

Dear patrons, it was yet another week of mid cap outperforming the large caps in the markets, as was expected and mentioned in the last blog. Nifty moved in a narrow range of 300 points for the week, making newer highs on multiple occasions. What is the reason for such move on the indices? Let's see one by one.

Global markets as always had a role to play in the moves on Indian markets. The US markets stood firm amidst concerns over rising inflation. The inflation data in US was supposed to be a big concern for the markets but the markets shrugged off the rising inflation. In fact the bond yields have dropped a fair bit after the inflation data, which is rather surprising. Fall in the bond yields lent support to buying in the equities. As we have been saying "Cash is King", liquidity drives the markets and is able to overlook basic rules of economics.

Locally we had robust GST collection, exceeding 1 lakh crore yet again. It only proves that Indian economy is very much driven by local demand. Many states which were under lock down have started opening up and this should augur well for the markets. Monsoon, the biggest driver of the Indian economy has arrived on time and with a bang in the country and is taking big strides, spreading very fast throughout. Prospects of bumper kharif crop augur well for the economy and the markets. The pandemic also looks reasonably under control.

As we can see from the comparative charts of Nifty and Bank Nifty, the Bank Nifty has underperformed. Private banks have been laggards in this rally on the Nifty. PSBs, however, have outperformed the private banks. The stage looks set for the Bank Nifty to move northwards now. While Nifty has been making new highs, the Bank Nifty is a fair distance away from its all time high. Banks are the biggest contributors in the Nifty index, any move in banking space has high impact on Nifty.

All in all the future looks bright for the markets. Traders should be nimble footed as always. Look for good quality stocks to trade. Markets may become tricky to trade, be cautious at higher levels.

Stay Invested!!!

Happy Trading!!!