“Unlike in the United States, Indian banks must make provision for all unrealized marked-to-market losses outside their held-to-maturity (HTM) portfolios. Most private sector banks in India have a relatively small HTM portfolio,” the note said.
The failure of two US banks has no material effect on the earnings outlook of Indian publicly traded companies, the report further said.
The firm is of the view that the SVB saga will have a positive impact on the Indian stock markets. “As a result of the incidents, the outlook for interest rates improves. This could increase the price-to-earnings multiples used to value Indian equities. We continue to believe that the Indian equity markets will generate returns of approximately 12%,” the report said.
In its note, the domestic brokerage firm also said the Reserve Bank of India (RBI) will likely adopt a more dovish monetary policy stance in the upcoming April MPC meeting similar to what Federal Reserve would do in its Federal Open Market Committee (FOMC) meeting, which begins on Tuesday.
The outlook for the country’s interest rate environment is more optimistic than previously, it further said.
“The anticipated decline in interest rates, including bond yields, would reduce the discounting rate on future earnings of companies, which would have a positive effect on the valuation of Indian equities over the medium- to long-term,” the report said.SVB’s failure opened the floodgates as a series of banking sector collapses got triggered. Signature Bank was the second bank to fail in this crisis roughly 48 hours after SVB’s problems emerged. It was then followed by the crisis in First Republic Bank.
Meanwhile, New York Community Bank has agreed to buy a significant chunk of the failed Signature Bank in a $2.7 billion deal, Reuters reported, quoting a statement released by Federal Deposit Insurance Corporation (FDIC) on Sunday.
The 40 branches of Signature Bank will become Flagstar Bank, starting Monday. Flagstar is one of New York Community Bank’s subsidiaries. The deal will include the purchase of $38.4 billion in Signature Bank’s assets, a little more than a third of Signature’s total when the bank failed a week ago, a Reuters report said.
The FDIC said $60 billion in Signature Bank’s loans will remain in receivership and are expected to be sold off in time, the report said further.
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