Stock markets went into a tailspin on Wednesday, with benchmark BSE Sensex and NSE Nifty50 plunging more than 2 per cent amid a global sell-off over worries that the US Federal Reserve may delay interest rate cuts. Lower-than-expected earnings by HDFC Bank, country's largest private sector lender, also hit banking stocks.
The BSE Sensex closed 1,628.01 points lower (2.23 per cent) at 71,500.76 level. The NSE Nifty50 tumbled 460 points (2.1 per cent) to 21,571.95 level.
"A nosedive correction in banking stocks, along with concerns over delays in US Fed rate cuts, impacted market sentiments. The addition of discouraging Chinese growth data and rising US bond yields, also resulted in widespread profit-booking," said Vinod Nair, head of research at Geojit Financial Services.
Furthermore, elevated valuations, coupled with the fact that optimism regarding earnings and GDP growth for the current financial year is already reflected in the market, also added to the downward pressure.
Federal Reserve Governor Christopher Waller had said a day earlier that the central bank should not rush to lower rates until lower inflation could be clearly sustained. This raised worries that the Fed may delay rate cuts. There are concerns that central banks in Europe and the UK too may delay rate cuts this year.
Elsewhere, the Chinese economy grew 5.2 per cent in 2023, meeting the government's growth target. But with consumers remaining cautious and the real estate market in a slump, the outlook for 2024 remains weak, said economists.
Against this backdrop, the Hang Seng index in Hong Kong tumbled 3.7 per cent and the Shanghai Composite Index also declined over 2 per cent. Japan's Nikkei 225 index fell 0.4 per cent.
In Europe major market indices, including the FTSE 100 in London, the CAC 40 in France and the Deutsche Borse DAX Index were trading 1.0-1.5 per cent lower on Wednesday.
Domestically, shares of HDFC Bank slumped more than 8 per cent, the most in nearly four years on the back of disappointing earnings.
The bank's net interest margins at 3.4 per cent remained flat quarter-on-quarter at the relatively suppressed levels since in the second quarter of the current financial year, despite the impact of ICRR (incremental cash reserve ratio) on margins in second quarter, excess liquidity building up due to merger management not being there and LCR (liquidity coverage ratio) run down from 121 per cent to 110 per cent during the quarter, noted analysts at JM Financial Institutional Securities.
"We estimate core margins could have declined by over 20 basis points quarter-on-quarter for HDFC Bank, which was a disappointment," the analysts said.
The weakness in HDFC Bank shares had a rub-off effect on other banking stocks. The country's largest lender State Bank of India declined 1.7 per cent. Private sector lenders ICICI Bank, Axis Bank, IDFC First Bank and Kotak Mahindra Bank, all fell around 3 per cent or more.
"Last week Nifty had a runaway rally as we kickstarted earnings season with large cap IT names beating estimates on margins. This week, margins took a turn with Nifty banks falling 4 per cent as HDFC Bank share price slipped on concerns around slowdown in deposit growth. As talks around rate cuts continue and as banks struggle with balancing credit growth versus margins, we are likely seeing a tactical rotation towards good quality non-banking finance companies," said Jaykrishna Gandhi, head - business development, institutional equities, Emkay Global Financial Services.
Select automobile, cement, steel, pharma and fast moving consumer goods stocks were also among the losers on Wednesday. Gainers included IT stocks; TCS, Infosys, Tech Mahindra and HCL Technologies rose 0.5-1.3 per cent. Shares of general insurer ICICI Lombard surged close to 6 per cent on strong quarterly results.
