Uneasy calm returns as Indian bank stocks jump

The Sensex index rose for the second straight day as a sense of calm spread in the financial market ahead of the upcoming Federal Reserve interest rate decision. It drifted to a high of 58,000 INR, which was slightly higher than this week’s low of 57,200 INR.

Fed decision ahead

The BSE Sensex index, the second-biggest Indian index, drifted upwards as focus among investors remained on the upcoming Fed decision. The Fed is expected to have a balancing act on Wednesday as its inflation battle rages on. It will also focus on the ongoing turrmoil in the banking sector, following the collapse of Silicon Valley Bank (SVB) and Credit Suisse. 

Therefore, the balance will come in the form of a 0.25% interest rate increase, which will be lower than what Jerome Powell hinted when he talked to Congress. At the time, he made a case for a 0.50% interest rate hike, which will bring the headline rate to between 4.75% and 5%.

Actions of the Federal Reserve have a direct impact on global indices, including the Sensex and the Nifty 50. That’s because indices tend to have a close correlation with each other. As such, in most cases, the Sensex index rises when its American peers rise. In fact, the current rally is partly because American indices like the Dow Jones and Nasdaq 100 rose on Tuesday. 

Most Sensex index constituents did well on Wednesday. Reliance Industries’ share price jumped by over 3.11% while Bajaj Finance rose by 3%. Other top performers in the index were Titan Company, IndusInd Bank, ICICI Bank, and Bajaj Finserv. Indian banks rose because of the strong performance of American bank stocks on Tuesday. 

On the other hand, the top laggards in the Sensex index were Power Grid, Hindustan Unilever, Tech Mahindra, and Tata Consultancy among others. 

Sensex index forecast 

Sensex chart by TradingView

The 4H chart shows that the Sensex index has been in a strong bearish trend in the past few weeks. This decline saw it drop below the key support level at 58,600 INR, the lowest level on Jan 30. The index has dropped below the 25-day and 50-day exponential moving averages. 

At the same time, the MACD has moved below the neutral level while the Relative Strength Index (RSI) is pointing downwards. Therefore, the index will likely continue falling as sellers target the next key support level at 56,000 INR. This view will be invalidated if the price moves below the key resistance level at 58,600 INR.