Indian stocks have been under tremendous selling pressure over the last few sessions, evaporating investors' wealth at an alarming rate.
Notably, stocks like Punjab National Bank and Canara Bank experienced the most substantial fall during this period, losing 12% and 11.4% of their value, respectively.
Other stocks, including those of the Central Bank of India, Bank of India, Indian Overseas Bank, and UCO Bank, also witnessed declines of over 9%.
Meanwhile, remaining stocks like Punjab & Sind Bank, Bank of Maharashtra, Union Bank of India, Bank of Baroda, and Indian Bank faced decreases ranging between 5% and 8.5%.
They offloaded ₹6,669 crore worth of Indian stocks in the previous trading session, marking the largest intraday sell-off since April 15th, Trendlyne data showed.
Indian stocks have been under tremendous selling pressure over the last few sessions, evaporating investors' wealth at an alarming rate. According to market experts, this downturn was on the back of elevated valuations, significant FII (Foreign Institutional Investors) selling, a hawkish US Fed, and uncertainty around the country's ongoing elections.
The recent sell-off hit the public sector banks hard as they faced sector-specific challenges stemming from the Reserve Bank of India's draft guidelines on project finance. These guidelines propose that lenders allocate more funds for loans to under-construction infrastructure projects.
Also Read: Why is Indian stock market falling for five straight sessions?
Amid this backdrop, the Nifty PSU Bank index saw a significant decline of 6.30% in a week, falling from 7,600 points to the current trading level of 7,108 points. Notably, stocks like Punjab National Bank and Canara Bank experienced the most substantial fall during this period, losing 12% and 11.4% of their value, respectively.
Other stocks, including those of the Central Bank of India, Bank of India, Indian Overseas Bank, and UCO Bank, also witnessed declines of over 9%. Meanwhile, remaining stocks like Punjab & Sind Bank, Bank of Maharashtra, Union Bank of India, Bank of Baroda, and Indian Bank faced decreases ranging between 5% and 8.5%. Contrarily, SBI's stock saw a more moderate decline of about 2%.
Analysts have pointed out that if these proposed norms are enforced, they could significantly impact lenders' margins. "We believe the draft norms are punitive toward incremental and existing project lending," and state-owned lenders will be most exposed if the norms get implemented, Nomura analysts said in a note.
Also Read: Mint Primer | Infra financing guidelines: Why are banks upset?
Macquarie analysts said the new provisioning requirements apply retrospectively and not to incremental loans.
"We think this will have two implications, where provisioning requirements will go up for lenders, affecting their profitability, and these companies may ration credit to project finance, further postponing the capex recovery," they added.
IIFL Securities estimates that the impact of 5% standard asset provisioning will result in banks making additional provisions of 0.5–3% of their net worth and a hit of 7–30 basis points on common equity tier 1 capital.
Nifty 50, Sensex down over 2.6% in a week
Compounding the challenges, the hawkish comments from the Federal Reserve also exerted pressure on the markets. Federal Reserve Bank of Boston President Susan Collins indicated on Wednesday that interest rates may need to be maintained at a two-decade high for a longer period than initially anticipated, aiming to moderate demand and alleviate price pressures, Bloomberg reported.
The upcoming release of inflation figures will provide new perspectives on the US economy, especially following last Friday's employment data, which indicated a slowdown in the labor market.
Also Read: Gold price dips ahead of Akshaya Tritiya on hawkish US Fed. Opportunity to buy?
Looking at the benchmark indices, both the Nifty 50 and Sensex have declined by 2.63% and 2.70%, respectively, in the past week as FPIs' selling streak continues. They offloaded ₹6,669 crore worth of Indian stocks in the previous trading session, marking the largest intraday sell-off since April 15th, Trendlyne data showed.
Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, "A major trend in the market now is the aggressive selling by FIIs, which has touched ₹15,863 crores so far this month. Though DIIs are buying, they are not as aggressive as they were due to some concerns surrounding election results."
Also Read: IT stocks see highest FPI selling worth ₹9,573 crore in April; Financials follow with ₹9,338 crore outflow
"It is important to understand that there is a new factor triggering FII selling, apart from the high US bond yields. This is the outperformance of the Chinese and Hong Kong markets," he added.
"During the last month, while Nifty is down 1.5%, the Shanghai Composite is up by 2.62%, and Hang Seng is up by a whopping 8.8%. Chinese and Hong Kong markets are cheap with PEs around 10, while India is expensive with double the PE of these markets. So long as this outperformance of the Chinese and Hong Kong markets continues, FIIs are likely to sell," V K Vijayakumar stated.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decision
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