Banking stocks trigger fall in markets

The Indian markets on Thursday fell for a consecutive session, led by declines in banking and financial stocks, which have high weight in the benchmark indices. The benchmark BSE Sensex fell 239 points, or 0.74 per cent, to 32,238. State Bank of India, HDFC, ICICI Bank and Axis Bank fell around two per cent each and dragged the Sensex down by 162 points. The broad-based Nifty fell 0.67 per cent to close at 10,014. The Bank Nifty index fell 1.5 per cent.

The slide in banking stocks came a day after the Reserve Bank of India (RBI) policy meeting, where it eased the repo rate by 25 basis points (bps) but maintained a “neutral” stance, dashing hopes of more rate cuts in the short term. 

“As expected, the RBI cut the policy repo rate by 25 basis points to six per cent, and stuck firmly to its neutral and wait-and-watch stance. As such, we believe the RBI will be on a prolonged pause from here on. There are risks of a final 25 bps rate cut towards the end of the year if inflation continues to undershoot the four per cent target by a large margin,” said Pranjul Bhandari, chief India economist, HSBC, in a note.

Market players said the decline in banking stocks is not alarming, as most of these have seen a sharp run-up in recent weeks. Experts said the markets could remain range-bound in the immediate term, and would keenly eye global cues and corporate earnings.

Foreign investors on Thursday were marginal net buyers to the tune of Rs 24 crore, while domestic institutions pulled out Rs 390 crore.  “Markets are on a liquidity steroid now. It’s very difficult for the investors to not participate in this game,” said Jigar Shah, chief executive officer and head of research at Maybank Kim Eng Securities. “Some corrections are always expected after such a rally and they are healthy.”

The Sensex and the Nifty have gained 22 per cent so far this year, on the back of over Rs 1-lakh crore worth of investment by mutual funds and foreign investors. Indian benchmarks are the best-performing indexes among major Asian markets this year after the Hang  Seng Index. “It’s not just India but globally also the equity markets are at all-time highs and this overheating is the main cause of concern,” Shah said.

Among the major Sensex gainers on Thursday were Bharti Airtel, which rose two per cent, followed by Reliance Industries, which added 1.4 per cent to close at a new all-time high of Rs 1,652. Bajaj Auto and Hero MotoCorp added one per cent each.