The Indian stock market began this week on a weak note, with both the benchmark indices, Sensex and Nifty 50 declined over 1% each, weighed down by selling across the board as concerns over elevated crude oil prices and rising bond yields continue to dent sentiment.
The Sensex crashed over 800 points and the Nifty 50 slipped below 22,900 level. The Bank Nifty index also slumped over 800 points, or 1.6%, to an intraday low of 54,691.55.
Barring Federal Bank, all other constituents of the Bank Nifty index traded in the red. Yes Bank was the top loser on the index with more than 4% plunge. Union Bank of India, IDFC First Bank, Canara Bank, Punjab National Bank (PNB) and State Bank of India (SBI) were other top laggards, with 2-3% fall each.
HDFC Bank, AU Small Finance Bank, Bank of Baroda, ICICI Bank, IndusInd Bank, Axis Bank and Kotak Mahindra Bank also declined over 1% each.
Banking stocks are witnessing higher selling pressure as India's 10-year government bond yield rose 5 basis points to 7.17%. The rise in bond yields could lead to mark-to-market losses on banks' treasury portfolios, potentially putting pressure on capital reserves.
At the same time, higher deposit and funding costs could weigh on banks' net interest margins (NIMs). Slowing credit demand is another concern, as it could limit loan growth and further weigh on banks' earnings outlook.
The entire financial sector has been under immense pressure since the Insurance Regulatory and Development Authority (IRDAI) released a consultation paper on distribution reforms, which proposes lower EOM caps for life and general insurers and segment-level commission caps, which had been eliminated from FY24.
Additionally, concerns over a potential repo rate hike in the upcoming Reserve Bank of India (RBI) monetary policy meeting are also weighing on market sentiment.
“There is a strong possibility of a 25–50 basis point repo rate hike in the October monetary policy meeting. If this materialises, it could negatively impact banks and NBFCs,” said Avinash Gorakshakar, Founder and Head of Research at AvinashMentor Research Services.
Moreover, rising crude oil prices could add to inflationary pressures, while a weaker rupee could further widen the trade deficit, he added.
ALSO READ: Aster DM Gets 'Buy' Initiation From Motilal Oswal — Check Bull, Base And Bear Cases
“These concerns are weighing on banking stocks today. Sentiment is also under pressure because banks have a significant weightage in the Nifty 50, amplifying the impact of weakness in the sector on the broader market,” Gorakshakar said.
The fall in banking stocks dragged the Bank Nifty index below the key support level of 55,000. Analysts believe holding below this zone could intensify selling pressure and drag the index towards 54,400.
Technical Outlook
Ruchit Jain, Head of Equity Technical Research, Wealth Management, at Motilal Oswal Financial Services noted that after breaching its important support of 56,000-55,800 during last week, the follow up move in the Bank Nifty index indicates a continuation of bearish momentum and hence, the weakness could continue until signs of trend reversal are seen.
“The immediate support for the Bank Nifty index is now placed around 54,330, followed by 53,300, which are the important retracment levels,” said Jain.
According to Ponmudi R, CEO of Enrich Money, 54,700 remains the crucial support level to watch, and a decisive break below 54,700 could intensify selling pressure and drag the Bank Nifty index toward the 54,300–54,000 support region.
“Momentum indicators have weakened significantly, with the RSI declining toward the 31–33 zone and approaching oversold territory. This reflects strong near-term selling pressure, although an oversold RSI could also allow for intermittent relief rallies if buying interest emerges,” said Ponmudi R.
Overall, he believes the near-term technical outlook remains cautious to bearish.
“Holding above 54,700 will be important to prevent further deterioration, while a sustained recovery above 55,400 would be required to improve the immediate technical structure,” he added.
ALSO READ: Catch Stock Market Live Updates Here
Disclaimer: The views and opinions expressed by the investment advisers on NDTV Profit are of their own and not of NDTV Profit. NDTV Profit advises users to consult with their own financial or investment adviser before taking any investment decision.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.