Indian benchmark equity indices continued their downward trend for the second consecutive day following negative cues from global markets as well.BSE Sensex closed the day at 71,500.76, down 1,628 points or 2.23%. Nifty50 closed the trading day down 460 points or 2.09% at 21,571.95.
Simultaneously, the market capitalization of all listed companies on BSE decreased by Rs 4.33 lakh crore to Rs 370.62 lakh crore, according to an ET report.
HDFC Bank, the highest-weighted stock, 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, which maintained its revenue growth forecast for fiscal 2024.
Closing over 4% lower, both Nifty Bank and Nifty Financial Services were notably affected, while Nifty metal, realty, oil & gas, and auto closed 1-3% lower.
Why BSE Sensex, Nifty50 crashed today
Several factors contributed to this market crash:
1. HDFC Bank’s impact on Indian shares: HDFC Bank alone accounted for a major decrease in Nifty, making it the primary reason for the market decline.
The shares of HDFC Bank plummeted by over 8% to a low of Rs 1,527.25 on Wednesday after the release of its December quarter results. The bank reported higher provisions compared to the previous year, which concerned investors. Despite a 34% increase in net profit, top brokerages expressed reservations about the bank’s loan growth and margins.
2. Dollar strengthens: The dollar index, which measures the value of the US dollar against a basket of currencies, reached a one-month high. This increase in the dollar’s value makes commodities, including crude oil, more expensive. As a result, India’s import costs rise, leading to a wider current account deficit.
3. Asian markets slump: Asian equities witnessed a slump on Wednesday, with Chinese stocks leading the way. Several data points indicated an uneven recovery in the world’s second-largest economy. China’s stocks fell sharply after it was revealed that the country’s economy grew by 5.2% in the fourth quarter of the previous year, missing analysts’ expectations. China’s blue-chip stock index dropped by more than 1% in early morning trade, reaching its lowest level since early 2019. Hong Kong’s Hang Seng index also slumped by 2.5%.
4. Rise in 10-year Treasury yield: The 10-year Treasury yield, which reflects long-term borrowing costs, increased to 4.052%. This rise in yield is a response to concerns that the expected rate cuts by the US Federal Reserve may not materialise. The market had anticipated five or six rate cuts in 2024, but indications suggest that the Fed is unlikely to cut rates in March.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, commented on the global negativity caused by rising bond yields in the US. The market had previously anticipated sharp rate cuts from the Federal Reserve, but now it seems unlikely that there will be a cut in March or as many cuts in 2024 as expected.
5: Overvalued mid and small cap space: V K Vijayakumar from Geojit Financial Services stated that the mid and small cap space is highly overvalued and is being sustained at high levels due to the abundance of liquidity in the system.
In the past year, the Nifty Smallcap100 index surged by nearly 60%, while the Nifty Midcap100 index gained over 40%. Comparatively, the Nifty itself rose by 21% during the same period.