Sensex falls 362 pts, Nifty below 11,400 amid turmoil in financial space

The benchmark indices saw a bout of heaving selling on Tuesday on worries that bad loans might spike following the turmoil in some of the key non-banking financial companies (NBFCs) and real estate entities.  

Investors pulled out aggressively from banking and financial stocks, with Yes Bank, IndusInd Bank, and State Bank of India declining 23 per cent, 6 per cent and 5.5 per cent, respectively.

The fall in banking stocks triggered panic in the markets, with the Sensex plunging nearly 1,000 points from the day’s high. However, the indices managed to recoup most of the losses, as companies tried to assuage investors’ nerves. 

The Sensex ended 362 points, or 0.95 per cent, lower at 38,305, while the Nifty fell 115 points, or 1 per cent, to close at 11,360. The sharp sell-off in intra-day trade saw shares of several companies, particularly those in the banking space, slip below the pre-corporation tax rate cut levels. SBI hit its 52-week low in intra-day trade. Nearly 250 firms trading on the BSE ended at their 52-week lows.

“There has been growing concern pertaining to Indian banks with real estate and NBFC exposure, in the wake of the recent PMC Bank and Indiabulls Housing Finance incidents,” said Arun Thukral, MD and CEO of Axis Securities. 

“These events have led to over-pessimism and estimation of another bout of fresh NPAs coming from these sectors, thus aggravating stress levels in the banking ecosystem.” 

Foreign portfolio investors sold shares worth Rs 1,300 crore, while domestic investors provided buying support to the tune of Rs 1,500 crore. Market players said there was panic selling, with investors even pulling out of companies not directly impacted by the recent crisis. 

Andrew Holland, CEO of Avendus Capital Public Markets Alternate Strategies, said there is nervousness with rumours floating around about defaults. “Suddenly, there is a focus on exposures of the banks, again.”

The crisis at PMC Bank has led to fears amongst investors that the money of ordinary depositors will be blocked. 

“PMC Bank has created a fear that more banks will default and money will be stuck,” said Ambarish Baliga, a stock market analyst. Barring two, all 19 sectoral indices of the BSE ended the session with losses. 

“The strong banks will continue to do well; the monetary policy will see another 50-bp cut. This will be positive for the sector. By the end of the festive season, if things pick up, we will have a different spin on the banking sector,” said Holland.