The Indian stock market extended its decline on Tuesday, with the benchmark indices falling nearly a percent each to six-month low, as selloff intensified in banks, IT, metals and auto stocks.
The BSE Sensex traded 611.47 points, or 0.84%, lower at 72,160.25, while the NSE Nifty 50 was down 185.00 points, or 0.81%, at 22,595.25. The Bank Nifty index declined 596.15 points, or 1.09%, to trade at 53,880.15.
In two sessions, the Bank Nifty index has slipped 1,795 points, or 3.23%, to a three-months low of 53,785.70.
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All the constituents of the Bank Nifty index were trading in the red. IndusInd Bank, IDFC First Bank, Canara Bank, Union Bank of India, Punjab National Bank (PNB), HDFC Bank, Axis Bank, Federal Bank and Bank of Baroda were the top losers in the Bank Nifty index.
Kotak Mahindra Bank, Yes Bank, State Bank of India (SBI), AU Small Finance Bank and ICICI Bank shares were also trading in the red.
Banking stocks have been under sustained selling pressure amid a surge in bond yields on rising expectations of a repo rate hike by the Reserve Bank of India (RBI) at its upcoming monetary policy meeting in October.
The Indian 10-year bond yields climbed remained above 7.15% on Tuesday, while the rupee slid to a two-month low on higher crude prices and rising US yields.
Higher bond yields could lead to mark-to-market losses on banks' treasury portfolios, potentially putting pressure on capital reserves. Additionally, higher deposit and funding costs could also weigh on banks' net interest margins (NIMs).
Meanwhile, investors also remained cautious ahead of the RBI's monetary policy, wherein the central bank is expected to raise repo rate by 25 basis points (bps). Expectations of RBI repo rate have increased after the US Federal Reserve raised interest rates by a quarter percentage points earlier this month.
Markets are pricing close to 125 bps of repo rate hikes over the next one year, citing cyclical pressures from food and energy prices which could push up inflation.
Technical Outlook
The technical outlook for Bank Nifty has turned weak in the near term, with the index slipping below the crucial 54,000 mark in today's session after breaking the earlier support around 55,300.
According to Sachin Gupta, VP – Research at Choice Broking, the index is now trading below its 50-day and 200-day EMAs, pointing to weakness in the short- to medium-term trend.
“The daily chart also shows a clear breakdown from the recent consolidation range, while RSI has moved into the lower zone, highlighting the ongoing negative momentum,” said Gupta.
Going ahead, he believes 53,500 – 53,300 will be the immediate support zone, followed by 52,800–52,700. On the upside, 54,000–54,400 is likely to act as the first hurdle, while 55,000–55,200 remains the broader resistance zone.
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“Unless Bank Nifty manages to reclaim these levels, the trend is likely to remain under pressure. After such a sharp fall, a short-term pullback cannot be ruled out, but the overall setup remains weak as long as the index stays below the broken support levels,” Gupta added.
According to Ponmudi R, CEO of Enrich Money, a decisive break below the 53,800 – 53,500 support zone could further intensify selling pressure and drag the Bank Nifty index toward the 53,200 – 53,000 region.
On the upside, he believes 54,300–54,400 has now reverted to an immediate resistance zone.
“A sustained move back above this band would be required to ease near-term pressure and open the way toward the previous higher trading range. Until then, recovery attempts are likely to remain vulnerable to selling pressure,” Ponmudi said.
Momentum remains weak, with market breadth heavily skewed toward decliners. The near-term technical outlook remains bearish, he added.
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