Markets Fall Most In 11 Months Led By Declines In Banking, Metals Stocks

Indian markets declined the most in nearly 11 months today even as the Narendra Modi-led government announced measures to revive GDP growth from a six-year low.

The NSE Nifty 50 fell by around 2 percent, or 225 points, led by Reliance Industries Ltd., HDFC Ltd., ICICI Bank Ltd. and Larsen & Toubro Ltd. Technology stocks defied the rout, partly due to the fall in rupee against the U.S. dollar, with Infosys Ltd. and Tata Consultancy Services Ltd. rising to their 52-week highs today. Two other stocks, Tech Mahindra Ltd. and HCL Technologies Ltd., closed higher.

Banking stocks didn’t react well to Finance Minister Nirmala Sitharaman’s announcement of proposed merger of state-run banks, with the Nifty PSU Bank Index dropping 5.3 percent and all its constituents closing with losses. Shares of Canara Bank, Union Bank of India and Indian Bank declined by over 10 percent. The NSE metals and energy indices dropped by over 3 percent each.

With today’s decline, the Nifty has returned negative gains of 0.8 percent to investors so far this year, and is among the worst performers in Asia. Tata Steel Ltd., Titan Company Ltd., Ultratech Cement Ltd., Indian Oil Corporation Ltd. and IndusInd Bank Ltd. dropped by over 4 percent each.

It’s a combination of global weakness, domestic slowdown and lack of earnings recovery, said Ajay Bagga, an independent market expert. “The Indian markets cannot enjoy the valuations it did earlier while growing at 8 percent nominal GDP growth rate,” he told BloombergQuint, adding there will be a re-rating. “Foreign flows have been impacted on account of a strong U.S. dollar and geopolitical risks,” Bagga said. “Sentiment-wise, a slowing domestic economy is a big concern and we continue to remain cautious on outlook.”

Chakri Lokapriya, managing director of TCG Advisory Service, agreed. “Weak corporate (results) and hesitant consumers are going into hibernation which is translating into low GDP growth and weak outlook,” he told BloombergQuint. “This can be fixed by swift action of GST rate cuts, widening tax base, and rollback of price controls and fee controls imposed by various regulatory bodies.” Corporate balance sheets, he said, are stronger than they were five-six years ago, and steps are needed from the government to revive cyclical growth.

Sectoral Performers

Nifty Small Cap Index

The Nifty Small Cap 100 Index fell to its lowest in two weeks, led by IRB Infrastructure Developers Ltd., Minda Industries Ltd. and Oriental Bank of Commerce. As many as 90 stocks in the 100-stock gauge declined. Persistent Systems Ltd., Sonata Software Ltd., Gujarat Alkalies & Chemicals Ltd., Himadri Speciality Chemical Ltd. and Care Ratings Ltd. were among the sector’s gainers, rising between 1.7 percent and 4.7 percent. The index has declined nearly 17 percent so far this year.

Nifty Midcap 100 Index

Nifty Midcap 100 Index fell the most in nearly two weeks, led by state-run banks, including Punjab National Bank, Union Bank of India, Canara Bank and Indian Bank which fell between 8.5 percent and 11.7 percent. Nearly 82 stocks of the index closed lower. The index has declined nearly 14 percent so far this year.

Reliance Power was the index’s biggest gainer, rising nearly 7.6 percent, followed by IDBI Bank Ltd.’s 7.3 percent gain—which came after the government said today it would infuse Rs 9,000 crore in it.