Vinod Bhat's Market Pulse - Mar 20, 2023
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In an attempt to shore up confidence and stem any contagion in the global banking system, UBS Group agreed to buy the 167-year old Credit Suisse for $3.23 billion and assume up to $5.4 billion in losses in a deal backed by a massive guarantee by the Swiss National Bank.
In the US too, 11 big banks agreed to $30 bn unsecured deposit injection into a troubled US regional bank and Yellen testified that banks remain resilient. US Fed and 5 European banks also announced coordinated action to enhance US Dollar liquidity.
In India, the Nifty index has closely tracked the S&P500 through the pandemic, when measured in dollar terms. Nifty had outperformed the S&P500 meaningfully through 2HCY22 - likely driven by strong earnings into the reopening. The recent weakness in the market has now eradicated the outperformance.
The one year forward P/E multiple for the Nifty stands at 17.4x, just below its long-term average. It had also tracked that for the S&P500 over time. Nifty multiples had moved to a premium over the S&P500 earlier, but these are also now back down to average (no premium).
Improved global sentiments are likely to have a rub-off effect on domestic markets. Given Indian equities have given up all their outperformance to the SPX, they can benefit from a near term bounce in global equities.