Financial Market

How does Indian market stack up against Asian peers when it comes to recent correction?

A primary factor contributing to the underperformance of the Indian markets over the last two trading sessions stems from the lackluster Q3 performance of HDFC Bank, the country’s largest private-sector bank. The downturn in HDFC Bank shares has sent shockwaves through the markets, precipitating a substantial decline in both the Nifty 50 and Sensex.

Also Read: Dalal Street bleeds: Mcap of these 5 private sector banks declines by 1.44 lakh crore in a day

On Tuesday (January 16), HDFC Bank released its December quarter numbers (Q3FY24), missing the street estimates in deposit and liquidity metrics. The rising cost of funds and tight liquidity have impacted the NIMs.

The bank reported a drop in net interest margin (NIM) on total assets to 3.4% from 3.65% in the previous quarter (Q3FY23). It’s worth noting that the NIM stood above 4% for the bank before its merger with the parent company, Housing Development Finance Corp. (HDFC).

Also Read: A $21 billion rout in India’s banks signals best days may be over

Investors swiftly offloaded HDFC Bank shares in response to its lackluster performance, causing the bank to shed 1.4 lakh crore in market capitalisation over a brief two-day span between January 17 and January 18. The significant 14% weightage of the bank in the Nifty 50 and a substantial 30% weightage in the Nifty Bank index have exacerbated the market decline.

Beyond HDFC Bank concerns, a confluence of global factors, including a surge in US bond yields, dwindling expectations for immediate rate cuts from the US Federal Reserve, substantial FPI outflows, a one-month high for the US Dollar, the strong spike in crude oil prices, and Red Sea shipping woes, has exerted additional pressure on the markets.

Also Read: FPIs’ bear flip may maul markets more

The surge in US bond yields has led Foreign Portfolio Investors (FPIs) to withdraw from emerging markets, resulting in the sale of 20,000 crore worth of Indian stocks between January 17 and January 18. Analysts suggest that if US bond yields continue to rise, FPIs might engage in further selling.

In line with Asian peers

Over the past four trading sessions, both the Nifty and Sensex witnessed a nearly 2% decline, a trend that mirrors the performance of their Asian counterparts. South Korea’s Kospi experienced a drop of 2.42% in the last four trading sessions, while Taiex shed 1.62% in the same period. 

China’s stocks are trading at a five-year low as a patchy economic recovery and limited stimulus prospects deter investors from riskier assets. The Shanghai Composite Index dipped by 1.32%, whereas Hong Kong’s Hang Seng emerged as the weakest performer in Asia, with a significant drop of 5.39% as of Thursday. In Japan, the main benchmark index, the Nikkei 225, also witnessed a decline of 0.30% till Thursday.

Although the Nifty 50 and Sensex rebounded in today’s trade (Friday), both indices are poised to conclude the week with over 1% drop.

Also Read: Nifty 50, Sensex gain 1% each: 5 reasons why Indian stock market is gaining

Commenting on the recent market performance, Vinod Nair, Head of Research, Geojit Financial Services, said, “Based on initial Q3 results, corporate earnings growth doesn’t align with the market’s high valuation. The results aren’t bad but insufficient to sustain the prevailing euphoria.”

“Simultaneously, FIIs are exercising caution on emerging markets, considering the possibility that the Fed may not implement rate cuts as aggressively in CY24 as initially forecasted. Investors should adopt a cautious approach in the short to medium term. Sector rotation and the safety of equity should be the key strategies of retail investors. Sectors deemed secure include IT, Pharma, Infra, and FMCG,” he added. 


Disclaimer: We advise investors to check with certified experts before taking any investment decisions.

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Published: 19 Jan 2024, 04:03 PM IST

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