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Edgy equity investors turn off risk-on mode

 

 Equity investors are uneasy about possible banking crisis contagion risks even before central banks around the globe can control inflationary pressures.

In reality, a systemic credit risk is currently the top tail risk for the markets, according to the BofA March Global Fund Manager Survey. As a result, high inflation has dropped to the second-most important danger. Recession continues a concern. According to the survey report, investor confidence is close to its lowest point in the past 20 years. As a result, 41% of respondents overall are presently taking less risk than usual, up from 32% in February.

Because of the crisis’s knock-on consequences, it is understandable why risk-taking capacity has decreased. It’s interesting to note that because it doesn’t involve solvency or subprime loans, the continuing banking crisis is seen as separate from the global financial crisis. Today’s problem is caused by high interest rates rather than subprime loans. According to a March 21 report by Nuwama Research, “core banking and private sector balance sheets in the western world are robust, thus limiting the scope of the crisis. Other elements are still having an impact on the environment. can ruin the celebration in the backdrop.The history of growth is very unfavorable. In comparison to earlier findings, the global PMI (Purchasing Managers Index), housing market, and money supply are all in very poor shape. The report noted that this time around, the US’s fiscal firepower and China’s monetary strength are both weak, which could have a significant economic effect if left unchecked.

In light of this, analysis of the US Federal Reserve’s interest rate choice and strategy for reducing stress in the banking system is important. The banking catastrophe has made the Fed’s already challenging situation even worse. Note that the two-day Fed meeting planned for March 21–22 was already underway at the time this story was being written.

According to Deepak Jasani, director of retail research at HDFC Securities Ltd., “risk appetite among equity investors is unlikely to improve in a hurry regardless of the result of the Fed meeting’s lengthy tightening cycle.

Investors are concerned about the potential contagion of a banking crisis even as central banks try to control inflationary pressures. The top tail risk for markets currently is seen as systemic credit risk, according to the BofA March Global Fund Manager Survey, with high inflation ranking as the second most significant danger.

Investors in Indian stocks run the danger of potential earnings declining. One of the finest leading indicators for earnings is the Global M1 Nifty. (given the strong global interlinkages). This portends a significant decline in Nifty profits. According to the Nuwama report, this (FY24) may fall short of the consensus expectation of 18–20% earnings increase.

These worries are reflected in the equity market’s disappointing returns. Nifty 50 and BSE Sensex are down 1.71% and 2%, respectively, so far in March. With Indian markets at comparatively low one-year forward valuation multiples, valuations have decreased. But it’s not exactly reassuring. According to Bloomberg statistics, the MSCI India index’s price-to-earnings multiple of 16.6 times is higher than that of the MSCI Asia ex-Japan and MSCI Emerging Markets indexes. Aside from the current global unrest, local levers like robust urban spending and systemic liquidity surpluses are declining.

Nitin Bhasin, Co-Head Institutional Equities and Head of Research at Ambit Capital, declared, “We are not going to be in a large risk-on mood for the next six months, if not longer.” On the broader front, there are difficulties, he claimed. The prognosis for overall consumption is gloomy because income levels are not increasing and few jobs are being created. The government must also handle fiscal and political exigencies, he added, as this is an election year.

All things considered, the road ahead for equity buyers has not been easy.

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