Stock Markets Crash Heavily
Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Author of Cyber Scams in India, Digital Arrest, The Money Trap and The Human Hack
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By Sunil Garodia
First publised on 2024-01-17 10:43:41
About the Author
Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Author of Cyber Scams in India, Digital Arrest, The Money Trap and The Human Hack
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There was bloodbath on Dalal Street on Wednesday as markets crashed big time after a big rally a couple of days back. Sensex lost 1628 points or 2.23% to close at 71500 and Nifty lost 460 points or 2.09% to close at 21571. The immediate trigger for the huge fall was the hawkish stance of US Fed regarding rate cuts which led to spike in yield in US 10-year treasury bonds and a rise in the dollar index. Locally, the market was concerned about the pressure on net interest margin of HDFC Bank although the December quarter results of the bank were as per expectation. The meltdown in HDFC Bank shares, which lost 8.44% today, was a big contributory factor in the crash as it pulled down the price of the shares of other banks also. The Nifty Bank was down 4.3% on persistent sell-off. In the last two trading sessions, the indices have wiped out all the gains made last week and till Monday this week.
The Federal Reserve Governor Christopher Waller said that "I see no reason to move as quickly or cut as rapidly" as in previous rate-cutting cycles, as long as labor markets and economic activity is solid. He added that "when the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully." The yield on US 10-year treasury bonds spiked to 4% after his comments and stock markets the world over tumbled on selling pressure. Investors in India read this as a signal that the RBI's monetary policy committee will also not cut rates given that inflation remains high in India too. This led to a sell-off, both by foreign and domestic investors.
On the other hand, while HDFC Bank posted good numbers for the December quarter and it met the expectations of the market, analysts found that there was huge pressure on net interest margins and costs were rising too. They said that it meant that going ahead banks would be hard pressed to maintain the level of profitability. HDFC Bank reported an increase of just 4% in net interest income for the December quarter. Analysts said that this meant that operating profit growth drivers were not sustainable (meaning operating profit would go down going ahead). This immediately led to a sell-off in HDFC Bank in particular and all other banks in general. This dragged Nifty Bank down by 4.3%.
