Equity indices spiralled lower in the afternoon session on September 20, weighed by robust selling in market heavyweights like HDFC Bank and RIL amid lacklustre global cues.
The BSE Sensex closed 796 points or 1.18 percent lower at 66,800.84, while the broader NSE Nifty slumped 231.90 points or 1.15 percent to end at 19,901.40.
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“Today, both Nifty and Sensex experienced profit booking, largely attributed to a sharp sell-off in HDFC Bank following its analyst meeting… Additionally, global markets exhibited caution in anticipation of the upcoming FOMC meeting,” said Parth Nyati, Founder at Tradingo.
Here are the key factors behind today’s market fall –
Selling in Heavyweights
HDFC Bank was the biggest drag on the Sensex, crashing almost 4 percent, after the company’s analyst call on September 18 failed to enthuse analysts.
Foreign broking firm Nomura has downgraded its rating on HDFC Bank to Neutral after the country's largest private-sector bank held the analyst call to share particulars of the merged entity.
Due to accounting adjustments, the combined entity's book value will be lower than HDFC Bank's standalone book value and that has led to several brokerages cutting their targets on the stock.
Book value is essentially the value of a company's total assets minus its total liabilities.
"Downward adjustment to the incoming net worth of HDFC Ltd (largely due to IGAAP accounting and provisioning harmonization) amounts to a book value per share cut of Rs 23 per share for the merged entity," said analysts at Nomura.
Also Read: Merger pain to last a while, Nomura downgrades HDFC Bank to Neutral
They have cut target price for HDFC Bank from Rs 1,920 earlier to Rs 1,800, which still represents a potential upside of 15 percent from its current levels.
Citi has maintained its Buy rating on HDFC Bank, although it has revised its target price down to Rs 2,110 per share. It noted that the entity's non-individual NPA (non performing assets) have been reset to 6.7 percent in June from 3.7 percent in March. A sharp uptick in NPAs due to HDFC Ltd’s corporate loan book is a negative, it added.
Jefferies has also maintained its "Buy" rating on HDFC Bank but has lowered target price to Rs 2,030 per share. The firm has noted that non-performing loans (NPLs) of HDFC Ltd are higher, which now form a big part of the merged entity.
Meanwhile, Reliance Industries slumped over 3 percent to a two-month low of Rs 2,355 in early trade on September 20, triggered by huge volumes as two crore shares changed hands on the exchanges so far, as against the one-month daily traded average of 73 lakh shares.
A block deal involving 1.9 crore shares or 0.3 percent equity also took place on the exchanges, worth around Rs 4,563 crore. Moneycontrol could not immediately identify the buyers and sellers involved in the transaction.
In addition, the government's decision to raise windfall tax on the sale of domestic crude oil last week to Rs 10,000 per tonne also weighed on the stock, especially in the backdrop of a consistent spike in Brent crude prices to a 10-month high of $95 per barrel.
Crude Shock
Worries over India’s current account deficit (CAD) have remerged, with crude oil prices surging to $95 per barrel, and the merchandise trade gap widening to a 10-month high in August.
Global benchmark Brent crude futures were up 28 cents at USD 94.71 a barrel by 1:02 p.m. EDT (1702 GMT), having hit a session peak of USD 95.96 a barrel, their highest since November.
Also Read: India’s CAD concerns make a comeback as crude climbs, trade gap worsens
Being the world’s third largest consumer of crude oil, India is particularly vulnerable to any price fluctuations in this commodity. This is why, despite a consistent slowdown in exports, experts had, earlier in the year, dismissed concerns over the outlook for CAD citing softer commodity prices, particularly those of oil.
But India may be losing a key buffer for its external finances as a decision by Saudi Arabia and Russia to extend production cuts till the end of 2023 has propelled global crude oil prices higher in recent days.
Global Markets
Asian stocks struggled for headway while US yields stood at or near decade highs along the curve as surging oil prices stoked inflation fears.
Participants are also on wait-and-watch mode ahead of the US Federal Reserve’s interest rate decision later today.
Higher energy costs have led to a bigger-than-expected spike in Canadian inflation and triggered selling in bond markets around the world.
Benchmark 10-year Treasury yields had hit their highest since 2007 at 4.371 percent overnight and were last at 4.36 percent.
In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.7 percent with Hong Kong stocks the biggest drag as China left lending rates on hold. Japan's Nikkei fell 0.6 percent.
FII Selling
Foreign investors sold shares worth a net Rs 1,237 crore on September 18, taking the total outflow to over Rs 4,000 crore in September so far.
"Factors such as increasing US bond yields, rupee weakness, a surge in crude oil prices, and selling by foreign institutional investors (FIIs) further contributed to the challenges faced by our markets," highlighted Nyati.
Currency Concerns
The rupee strengthened by 6 paise to 83.26 against the US dollar in early trade on Wednesday.
At the interbank foreign exchange market, the domestic unit opened at 83.22 against the dollar and then slipped to 83.26, registering a gain of 6 paise over its previous close. In the initial trade, the domestic unit was moving in a tight range of 83.27-83.22 against the American currency.
In the previous session on Monday, the rupee had settled at an all-time low of 83.32 against the dollar.
“The Rupee's decline to nearly an all-time low can be attributed to a various of factors, including the surge in crude oil prices, the robust performance of the US dollar, capital outflows from Foreign Institutional Investors (FIIs) in the equity market, and a widening trade deficit that stands at a substantial $24.16 billion. All this coupled together triggered the stoplosses of the traders short on USD, leading to a knee jerk (reaction),” said Amit Pabari, MD of CR Forex Advisors.
He added that while the rupee crossing the 83.25 mark is not new, what holds significance is the preparedness of the RBI to intervene.
“Historically, when the Rupee has reached these levels, the RBI has taken measures to safeguard its value. In the last month, when the rupee attempted to breach its all-time low, RBI had guided the banks to avoid taking fresh positions in the NDF, thereby leading to a sharp correction in the USDINR pair,” he added.
Analyst Views
From a technical perspective, Nifty and Sensex have identifiable immediate support levels at 19,900 and 66,900, respectively. If these levels are breached, we may witness additional profit booking, potentially leading towards 19,640 for Nifty and 66,000 for Sensex, Tradingo's Nyati said.
"The sideways trend in the market is expected to persist in the upcoming trading sessions. This is attributed to the anticipation of the outcome of the US Federal Reserve meeting, which is a significant event that can impact global financial markets," said Kunal Shah, Senior Technical & Derivative Analyst at LKP Securities.
Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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