The Indian stock market indices, Sensex and Nifty 50, witnessed deep cuts in the opening trade on Wednesday dragged by index heavyweight HDFC Bank after it posted lower-than-expected quarterly results.
The benchmark Sensex tanked more than 1,100 points at open, while the Nifty began trading 395 points lower below 21,650.
The BSE Sensex was trading 811 points or 1.11% lower at 72,317. Nifty50 was trading at 21,809, down 223 points or 1.01% at around 9.24 am.
All the sectoral indices traded in the red with banking stocks bleeding the most weighed down by HDFC Bank Q3 results.
Broader markets, Nifty Midcap 100 and Nifty Smallcap 100 indices were also trading sharply lower.
Key Factors Behind Today’s Market Crash
HDFC Bank Shares Drag
HDFC Bank alone contributed 167 points to Nifty’s 250-point fall, which is the biggest reason for the fall in the market.
Shares of HDFC Bank crashed over 7% to the day’s low of Rs 1,560 on Wednesday after its December quarter results where India’s largest lender reported higher provisions on the year-on-year basis. Despite a 34% uptick in its net profit, investors appeared unimpressed by the outlook on loan growth and margins by top brokerages.
Top brokerages like CLSA and Morgan Stanley red flagged loan growth and lower liquidity coverage ratio (LCR) on the HDFC Bank.
Profit booking on valuation concerns
After a sharp rally in the markets with Nifty 50 scaling above 22,100 in the previous session, investors likely opted to take some profit out of the table, analysts said. Meanwhile, concerns over stretched valuations in the midcap and smallcap space also triggered selling.
“Domestically, even though the economy is doing well and corporate earnings are good, all these positives are in the price and the valuations are elevated warranting a correction. The mid and small cap space is highly overvalued and is sustaining at high levels only by the high liquidity in the system. Some profit booking and moving the money to fixed income can be considered now,” said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Weak global market cues
Weak global market cues also dragged domestic indices lower. Asian markets traded in the red, while US stock market indices ended lower overnight as bond yields rose.
US Treasury yields rose on Tuesday after central bankers in Europe and the United States pushed back against market expectations of imminent interest rate cuts. The yield on the benchmark US 10-year Treasury note increased by over 11 bps to 4.064%, weighing on risky assets.
“Market is likely to turn slightly weak in the near-term, getting impacted by some negative global and domestic cues. The global negativity will come from the rising bond yields in the US responding to concerns that the sharp rate cuts expected from the Fed this year may not materialise. Now indications are that the Fed is unlikely to cut in March and the total cuts in 2024 may not be five or six that the market had partly discounted. This will be a drag on global equity markets,” Vijayakumar added.
Dollar at one-month high
When the dollar index rises, crude oil and other commodities become more expensive. It increases our import costs and widens our current account deficit.
The dollar index hovered at a one-month high against a basket of currencies on Wednesday as remarks by Federal Reserve Governor Christopher Waller dampened expectations for a March rate cut.
Waller said that while the US is “within striking distance” of the Fed’s 2% inflation goal, the central bank should not rush towards cuts in its benchmark interest rate until it is clear lower inflation will be sustained.
10-year Treasury yield rises above 4%
The 10-year Treasury yield, which tracks expectations of long-term borrowing costs and rises as the price of the debt security falls, climbed to 4.052%.
“The global negativity will come from the rising bond yields in the US (the 10-year yield is at 4.04 %) responding to concerns that the sharp rate cuts expected from the Fed this year may not materialise. Now indications are that the Fed is unlikely to cut in March and the total cuts in 2024 may not be five or six that the market had par ..
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