The Indian stock market experienced a substantial decline today, with the BSE Sensex plunging over 1,600 points and the Nifty50 ending below 21,600. This marked the worst day for the 30-share index in the last 16 months. HDFC Bank, a significant player in the indices, led the downturn after reporting quarterly results below expectations. The broader market was also impacted by a drop in metal stocks, influenced by China’s quarterly growth falling short of projections.
Closing at 71,500.76, the BSE Sensex was down 2.23%, while the Nifty50 closed at 21,571.95, down 2.09%. The market capitalization of all listed companies on BSE decreased by Rs 4.33 lakh crore to Rs 370.62 lakh crore. HDFC Bank witnessed an 8.5% decline, marking its most substantial single-session percentage fall since March 23, 2020, attributed to stagnant margins for the second consecutive quarter.
Except for the Nifty IT index, all sectoral indices closed in the red. The Nifty IT index recorded a 0.64% increase, driven by a 3.5% surge in L&T Technology Services, maintaining its revenue growth forecast for fiscal 2024. Nifty Bank and Nifty Financial Services closed over 4% lower, while Nifty metal, realty, oil & gas, and auto closed 1-3% lower.
Several factors contributed to this market crash:
HDFC Bank’s Impact on Indian Shares:
HDFC Bank alone accounted for a major decrease in Nifty, being the primary reason for the market decline.
The bank reported higher provisions compared to the previous year, raising concerns among investors despite a 34% increase in net profit.
Dollar Strengthens:
The dollar index reached a one-month high, making commodities, including crude oil, more expensive for India.
The rise in the dollar’s value led to increased import costs, contributing to a wider current account deficit.
Asian Markets Slump:
Asian equities, especially Chinese stocks, witnessed a slump due to signs of an uneven recovery in China’s economy.
China’s blue-chip stock index dropped more than 1%, reaching its lowest level since early 2019. Hong Kong’s Hang Seng index also slumped by 2.5%.
Rise in 10-year Treasury Yield:
The 10-year Treasury yield, reflecting long-term borrowing costs, increased to 4.052%, signaling concerns about expected rate cuts by the US Federal Reserve.
Anticipations of sharp rate cuts from the Federal Reserve were dampened, impacting global markets negatively.
Overvalued Mid and Small Cap Space:
V K Vijayakumar from Geojit Financial Services highlighted the highly overvalued mid and small cap space, sustained at high levels due to abundant liquidity.
The Nifty Smallcap100 index surged nearly 60% in the past year, and the Nifty Midcap100 index gained over 40%, indicating concerns about overvaluation.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, commented on the global negativity caused by rising bond yields in the US, suggesting a shift in market expectations regarding rate cuts by the Federal Reserve. The market had initially anticipated sharp rate cuts, but now it seems unlikely that there will be a cut in March or as many cuts in 2024 as expected.
In summary, the market downturn was influenced by a combination of factors, including disappointing quarterly results from HDFC Bank, a stronger US dollar affecting import costs, a slump in Asian markets, an increase in the 10-year Treasury yield, and concerns about the overvaluation of mid and small cap stocks. Investors are navigating through a challenging environment marked by uncertainties both domestically and globally.