Worst is not over and more pain is around the corner

The domestic stock markets during March 9-15 period under review were under severe pressure not only in India, but globally as well. In India they lost on all five consecutive sessions from Thursday to Wednesday and saw a relief rally or corrective pull back on Wednesday initially. The pullback began on a very strong note and at the high point of the day BSE Sensex was up 675 points and Nifty 170 points. Alas! The pullback lasted a mere couple of hours as markets surrendered all the gains and closed in negative territory. They finally closed with losses of 344 points and 71 points respectively.

At the end of the period under review, BSE Sensex lost a massive 2,792.19 points or 4.63 per cent to close at 57,555.90 points, while Nifty lost 782.25 points or 4.41 per cent to close at 16,972.15 points.

Dow Jones had a horrible week and lost on the first four consecutive days, before recovering ground on Tuesday, which was the last day of the period. Dow Jones lost 701.06 points or 2.13 per cent to close at 32,155.40 points.

A key event which hit US markets was the Federal Deposit Insurance Corporation putting under

receivership, Silicon Valley Bank (SVB). The bank funds startups and sold a 21 billion bond portfolio to repay depositors. The portfolio consisted of mostly US Treasuries and the average yield was 1.79 per cent, far below the current 10-year treasury yield of 3.9 per cent. This resulted in a loss of $1.8 billion which the bank proposed to raise through fresh equity issues. The share price fell by 60 per cent. Hence, it’s called off. This as per media reports is the first of many US banks feeling the heat of rising interest rates.

A thought which comes to mind is that if this is the fall-out with just one bank. If a couple more

where to go belly up it could shake the entire system. Markets post the period under review have become extremely vulnerable and fragile. They are under pressure and the mood is changing from optimism to despair. Yet nobody wants to sell in the retail segment. This reluctance would be the cause of a looming sharp sell-off in the coming days.

Coming to the markets in the period March 16-22, expect volatility and a nervous market place. While one eye would be on the US markets and what happens there, the other ear would be trying to sift the noise about the banking system and whether any more events like the Silicon Valley are happening. As mentioned earlier, the key focus in India would be on the Smallcap and midcap sector which could be under pressure hereon.

Key resistance for the markets would be at levels of 17,250-17350 on Nifty and 58,650-58,950 on BSE Sensex. Incidentally even during the rally during the earlier half of the period, these levels were not breached. The higher resistance would remain in the region of 17,750 on Nifty and 60,200 on BSE Sensex. The Budget day lows have been finally broken decisively and these would now turn as resistances. With these levels being broken, the next line of defence would be 17,000-17,050 on Nifty and 57,900-58,050 on BSE Sensex. Incidentally these levels have been broken intraday and they would be a pivot for some time.

The Budget day low is broken, the next lower level is under threat, very clearly further downside exists. A decent support level could be in the region of 16,650-16,700 on Nifty and 56,600-56,800 on BSE Sensex. The trading strategy for the period would be to sell on rallies and avoid buying for the immediate short term. Stay away from mid-cap and Small-cap sectors as they are where the pain is and would be for some time to come. Clearly the worst is not over and more pain is around the corner.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)