Will it impact Indian Stock Market?
Thursday, March 9th the news outbreak about the liquidity crisis in the Silicon Valley Bank (SVB) affects three wall street indices like S&P 500, Dow Jones, and Nasdaq which lost up to 2% on Friday. This led to a downfall in banking stocks on Dalal Street with the Bank Nifty index down over 4% since Thursday.
As soon as the news outbreak the four giant USA banks lost nearly $52 billion in their market value. The only culprit behind this crash in banking stocks was the 60% fall in the shares of SVB's parent company SVP Financial Group.
The major reason behind this crash is SVB has sold its $21 billion worth AFS bond portfolio for $1.8 Billion which is a huge loss. And also, SVB further plans to sell shares worth $2.3 billion to boost its liquidity, which was started by the lender during the press release.
This information outbreak led to a stock crash of up to 60% in just one day that is on Thursday, March 9th. Since the global financial crisis in 2008, this Silicon Valley Bank collapse has become one of the biggest retail banking failures.
This information outbreak led to a stock crash of up to 60% in just one day that is on Thursday, March 9th. Since the global financial crisis in 2008, this Silicon Valley Bank collapse has become one of the biggest retail banking failures.
The two major reasons behind the decision made by SVB to the selling of its bonds due to a major liquidity crisis – High-Interest Rates and Declining Deposits
High-Interest Rates:
The Feb increased the liquidity in the US market to uplift the economy during the pandemic time. Which led to having more money with people and businesses at their disposal. This created high liquidity in banks, they were not sure what to do with the huge liquidity.
They Invested huge liquidity in government debt securities and US treasuries. The same happened with Silicon Valley Bank which had a $21 billion bond portfolio and gave a yield of 1.79% for a duration of 3 years.
When Central Bank raised the interest rates, it affected on US treasury yield the three-year yield stands at 4.7%. As rates increased the Silicon Valley bank’s bonds started falling drastically and resulting in huge losses.
Declining Deposits:
Another major reason is, The Silicon Valley Bank is mostly lending money to technology companies, which means most of SVB deposits come from technology firms.
As of 2022, the tech markets have been struggling to upscale their business and also, and we are hearing massive layoffs happening from major companies across the world. The data of weak tech IPO and capital markets gives the clearer idea that they have fewer funds and thus less money to deposit with banks. Most companies are withdrawing their deposits from the banks to safeguard their funds which is affecting more.
Was Silicon Valley Bank (SVB) crisis the major reason behind Indian Stock Market falls this week?
Indian Stock Market witnessed a heavy sell-off during the week off trade after the news outbreak about Silicon Valley's bankruptcy. As per experts, this crisis has no connection with Indian banks or US banks when we look from a fundamental perspective, The market fall on Friday was only because of sentimental as news spread in Dalal Street.
Disclaimer: The views and information provided are as per individual analysts. We recommend investors connect with certified experts before making any investment decisions.
Niveshartha
March 15, 2023
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