Sensex Witnesses Worst Single-Day Crash in 16 Months; HDFC Bank Shares Plunge

In a major setback for the Indian stock market, the BSE Sensex recorded its worst daily performance in the last 16 months, primarily driven by a significant fall in HDFC Bank shares. On Wednesday, the 30-share benchmark index plunged over 1,600 points or 2.23%, surpassing the previous worst percentage loss recorded on June 16, 2022. This unexpected crash has left investors concerned about the stability of the market and the future outlook for banking stocks.

HDFC Bank’s Influence on the Market

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The decline in both the BSE Sensex and Nifty50 can be attributed to HDFC Bank, with more than half of the drop being attributed to this heavyweight bank. Investors were disappointed with the flat net interest margin (NIM) at 3.4%, despite the wear-off of the impact of the ICRR (Inter-Creditor Relationship Framework) and the draw-down of surplus liquidity. This unexpected development has led market participants to question the bank’s ability to maintain profitability and sustain growth.

Impact on Nifty Bank and Other Financial Stocks

The crash in the Sensex also had a significant impact on the Nifty Bank, which experienced a steep decline of 4%. This plunge affected several prominent banks, including Kotak Mahindra Bank, ICICI Bank, IDFC First Bank, Axis Bank, Federal Bank, and AU Small Finance Bank, all of which witnessed a fall between 2-4%. Moreover, other financial stocks and PSU banks faced bearish pressure, compounding the negative sentiment in the market.

Metal Stocks and Concerns over Demand from China

Adding to the market’s downward pressure, metal stocks plunged due to growing concerns over demand from China. As the world’s largest consumer of metals, any slowdown in China’s economy directly impacts the global metal market. Investors are monitoring this situation closely, as it has the potential to further dent the market sentiment and affect the overall industry.

 

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Impact on Small Caps and Nifty IT

The stock market slump did not spare smaller stocks either, as both the midcap and small-cap indices fell by 1% each. Notably, despite the market fall, Nifty IT and Nifty Media remained relatively unaffected. This suggests that investors are seeking refuge in these sectors, which appear to be more resilient to the current market turbulence.

Expert Analysis and Outlook

According to Naveen Kulkarni, Chief Investment Officer at Axis Securities PMS, the current market decline is primarily driven by banks, specifically influenced by the recent results of HDFC Bank. The bank’s elevated credit/deposit (CD) ratio surpassing RBI’s comfort levels has raised concerns among investors. This trend of aggressive deposit mobilization, potential margin pressures, and a deceleration in lending growth may lead to a de-rating of the banking sector. However, analysts maintain optimism about PSU banks, anticipating robust earnings and further growth opportunities for many of them.

Santosh Meena of Swastika Investmart shares this positive outlook for PSU banks, also identifying Bank of India as a preferred choice among small PSU banks. Furthermore, analysts expect State Bank of India (SBI) to catch up with the overall market momentum, particularly among large-cap names.

Evaluation of Market and Global Factors

The recent crash in the Indian stock market is seen by analysts as a breather following a significant upward movement, considering that valuations are currently higher than historical multiples. On the global front, rising bond yields in the US, with the 10-year yield at 4.04%, have also caused negativity. Concerns are emerging that anticipated rate cuts from the Federal Reserve this year may not materialize as expected. This uncertainty has contributed to the market’s cautious sentiment, reflecting the interdependence of global economies.

 

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The BSE Sensex’s worst single-day crash in 16 months, largely driven by the significant fall in HDFC Bank shares, has shaken investor confidence in the Indian stock market. The dismal performance of banking stocks and concerns over global factors have exerted downward pressure on the market. However, analysts maintain an optimistic outlook for PSU banks, expecting robust earnings and growth opportunities. As the market reevaluates the current situation, investors remain watchful for any indicators of a potential rebound or further downturn.

 

Source:indiatimes.com

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