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Published: January 18, 2024
Updated: January 18, 2024

Market Crashes by over 1600 points: HDFC Bank's Plunge Sparks Largest Market Rout in 18 Months

A sudden and dramatic downturn gripped the Indian markets as HDFC Bank, a cornerstone of the Nifty and the Sensex, experienced a sharp decline. This triggered the most significant single-day losses in nearly a year and a half, wiping off a staggering Rs 4.59 trillion from investors' wealth.

HDFC Bank's Downfall:

The disappointing earnings report for the December quarter resulted in an over 8 per cent slump in HDFC Bank's stock. This accounted for more than half of the losses incurred by both the Sensex and the Nifty, where HDFC Bank holds substantial weightings of 14.7 percent and 12.7 percent, respectively.

Market Ripple Effect:

The ripple effect was palpable as other banking stocks, particularly in the Nifty Bank index, plummeted by 4.3 per cent – the steepest fall since March 7, 2022. Foreign portfolio investors (FPIs) withdrew a net Rs 10,578 crore from equities in a single day, with a major focus on HDFC Bank. A record Rs 13,319 crore worth of HDFC Bank shares were traded on the NSE.

Global Factors Adding Pressure:

The market turmoil wasn't solely driven by HDFC Bank's performance. The hardening of US Treasury yields and statements from ECB officials created a global sentiment shift. Concerns about the Federal Reserve's pace of interest rate adjustments added to the unease. Additionally, a surge in UK inflation and sluggish economic data from China further contributed to the negative atmosphere.

HDFC Bank's Struggles Post-Merger:

Analysts pointed out that post the merger with HDFC Ltd, HDFC Bank has faced challenges in establishing drivers for earnings growth. Despite meeting net profit expectations, the bank's net interest margin (NIM) declined, leaving investors uncertain about the bank's future trajectory.

Market Outlook and Cautious Optimism:

While market experts acknowledge the severity of the decline, they also emphasize that the positive factors driving the markets remain intact. Expectations of a rebound following steep falls and a muddled outlook for rate cuts add complexity to the situation. The 10-year US bond yield's rise to 4.11 per cent raises questions about the future direction of global interest rates.

HDFC Bank's unexpected slide triggered a domino effect:

That led to the worst day for the Indian markets in the last 18 months. Global factors, coupled with concerns about the bank's post-merger performance, created an atmosphere of uncertainty. As markets grapple with these challenges, cautious optimism prevails, with the potential for a rebound but also an awareness of geopolitical tensions and the evolving global economic landscape.