HDFC, RIL shares drag down market over 1 per cent
Investors ramain cautious on rising US bond yields and dollar, elevated oil prices, and concern over Fed policy meeting
NEW DELHI: Domestic equity market benchmark indices tumbled over 1% each on Wednesday as shares of index heavyweight HDFC Bank plunged by 4% to close at Rs 1,564 apiece following rating downgrade by global brokerage Nomura.
The market was also dragged down by another heavyweight, Reliance Industries (RIL), as its shares fell 2.2% to close at Rs 2,382. Sensex fell 1.18% to close the session at 66,800 while Nifty50 ended at 19,901, down 1.15%. Investors lost Rs 2.38 lakh crore as the market capitalisation of listed firms on the BSE fell to Rs 320.61 lakh crore.
Besides the sharp sell-off in HDFC and RIL, the market remained under pressure due to rising US bond yields, the dollar and elevated oil prices. There were concerns over the Federal Reserve policy meeting (to be out late Wednesday), which will decide the future trajectory of interest rate hikes. The market is expecting a hawkish tone in the meeting HDFC Bank fell after Nomura downgraded its rating to Neutral and cut the target price of the stock to Rs 1,800 from Rs 1,920 earlier following an analyst call by the country’s largest private lender to brief about the merged entity.
The brokerage expects margin pressure and concern about asset quality post-merger of HDFC twins. Nomura said HDFC’s net interest margins (NIM) could see pressure over the next two to three quarters as the lender’s Q2FY24 opening book NIMs are at 2% versus 2.7% in Q1. Nomura 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 25bp in FY24F and 15-20bp in FY25-26F on excess liquidity, accounting adjustments; 3) higher cost-to-income due to accounting changes and 4) a sharp uptick in NPAs (non-performing assets) in HDFC’s corporate loan book.
Parth Nyati, founder at Tradingo, said, “Global markets exhibited caution in anticipation of the upcoming FOMC meeting. Factors such as rising US bond yields, rupee weakness, surge in crude oil prices, and selling by foreign institutional investors (FIIs) further contributed to the challenges faced by our markets.”