NEW DELHI: Indian equity market benchmarks -- BSE Sensex and NSE Nifty -- fell over 1% each on Wednesday as index heavyweight -- HDFC Bank -- plunged sharply by up to 4% to hit an intraday low of Rs 1,563 before ending the day at Rs 1,566 a share.
The market was also dragged down by Reliance Industries shares which slumped over 3% in early trades to hit a two-month low of Rs 2,355 after block deals before ending the day at Rs 2,380.65, an intra-day fall of 2.29%.
The Sensex ended the day at 66,800.84, down 1.18%. while the NSE ended at 19,901.40, down 1.15%.
HDFC shares fell after foreign broking firm Nomura downgraded its rating to Neutral. Nomura took this call after the country's largest private-sector bank held an analyst call to share particulars of the merged entity. Nomura has reduced the target price for HDFC Bank to Rs 1,800 from Rs 1,920 earlier.
The brokerage said that net interest margins (NIM) could see pressure over the next two to three quarters as HDFC Ltd's Q2FY24 opening book NIMs are at 2% versus 2.7% in Q1.
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Nomura also highlighted four negative surprises from the analyst meeting - 1) net worth adjustments have a negative 4% impact on FY24F BVPS (book value per share), 2) NIM cuts of 25 bps (basis points) in FY24F and 15-20 bps in FY25-26F on excess liquidity, accounting adjustments; 3) higher cost-to-income due to accounting changes (upfronting of sourcing costs under IGAAP for HDFC Ltd vs amortization under IndAS); and 4) a sharp uptick in NPAs (non-performing assets) in HDFC Ltd’s corporate loan book.
"Our EPS (Earnings per share) cuts of 5-9% over FY24-26F and BVPS cuts of 7% largely factor in these, in our view. This depresses HDFCB's medium-term RoA ( return on asset) profile further (1.7-1.8% over FY24-26F) and the gap vs ICICI’s 2.2% RoA profile (FY24-26F) is even starker now," Nomura said in its report.
Commenting on Wednesday's market fall, Parth Nyati, Founder at Tradingo, said that Nifty and Sensex experienced profit booking, largely attributed to a sharp sell-off in HDFC Bank following its analyst meeting.
"During the meeting, concerns were raised about potential margin pressure and the asset quality post-merger of HDFC twins. Additionally, global markets exhibited caution in anticipation of the upcoming FOMC meeting. 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," said Nyati.
"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," added Nyati.