Indian stock markets fall as risk aversion continues

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Indian stock markets fall as risk aversion continues

The stock markets fell sharply against the on Tuesday as a global wave of risk aversion sparked by the collapse of California-based Silicon Valley Bank SVB hit emerging-market EM currencies.

The domestic currency was at 82.49 per dollar, against 82.13 at the previous close. In 2023, the has appreciated 0.3 per cent against the dollar.

The dollar index rebounded sharply on Monday after a steep decline in US yields and speculation that the US Federal Reserve Fed will slow on rate hikes in the wake of the turbulence in the American banking sector.

As ripples of the SVB episode were felt in other parts of the US banking system — another lender Signature Bank was taken over by regulators — risk aversion deepened, benefiting the dollar, which is the world's reserve currency.

The dollar index was at 103.74 at the time of 3:30 pm IST, against 103.59 at the previous close, according to Bloomberg data.

After the SVB Financial spread to at least one other bank and market uncertainty on Fed future rate hikes kept risk appetite alive as Indian equities fell by 0.5 per cent, the rupee opened lower, said Anil Kumar Bhansali, head-treasury, Finrex Treasury Advisors.

The rupee will move with a weakness bias as the risk-off sentiment continues in the market, moving within a range of 82.2 -- 82.8, he said.

While March usually sees the rupee benefit from dollar sales by exporters and some corporations looking at closing their accounts at the end of the year, analysts believe that the domestic currency is facing a lot of pressure.

The aversion to riskier EM currencies, coupled with an uncertain outlook on US rate hikes — inflation in the country remains much higher than the Fed's target of 4 per cent, has clouded the view on the rupee, according to analysts.

The rupee has been an outperformer within the EM space over the past few weeks but we doubt that trend will continue once the seasonal March effect fades, wrote HDFC Bank Treasury Research.

It expects the dollar pair to trade in the range of 82 -- 84 in the coming quarter, with further rate hikes by the Fed to put pressure on the rupee, it added.