Understanding the Market Drop: HDFC Bank and Reliance Industries
Today, we witnessed a significant drop in the market, breaking the recent trend of consecutive gains. In this blog post, we will analyse the reasons behind the market drop, particularly focusing on the impact of two major players: HDFC Bank and Reliance Industries.
The market drop today was quite remarkable as it fell by more than 100 and 2130 points in the morning. Unable to recover, it retreated back to a range between 19,300 and 20,000, losing the support at 20,000. The primary cause of this decline can be attributed to the underperformance of two large-cap stocks, HDFC Bank and Reliance Industries.
Nifty
Nifty Heat Map
In the Nifty heat map, HDFC Bank was observed to have dropped by 4%, while Reliance Industries experienced a decline of 2.2%. These significant drops in their stock prices had a cascading effect on several other stocks as well. The announcements made by HDFC Bank’s management regarding potential slippages for the year, which exceeded expectations, contributed to the decline in its stock. It is worth noting that HDFC Bank has rarely issued cautionary statements, and historically, such statements have led to negative market sentiments and subsequent drops in stock prices. This announcement came just two days after a major breakout and increase in volume on Monday, leaving short-term buyers who entered the market on that day with considerable losses. Some individuals recorded losses of 5% to 7% on their investment in this stock.
Considering HDFC Bank’s significant weightage in both the Bank Nifty and Nifty, its decline played a crucial role in the overall market drop. Reliance Industries, another prominent player, also followed suit with a decline of 2.23%. The government’s decision to hike the windfall tax added to the negative sentiment. Governments tend to impose taxes on sectors that generate substantial profits, aiming to redistribute wealth and balance the playing field among industries. As a result, the affected sectors experienced declines in their stock prices.
Sectoral Overview
Public sector enterprise stocks such as Power Grid, Coal India, and ONGC defied the trend and managed to hold their ground. On the other hand, sectors like metals, real estate, commodities, infrastructure, and consumption witnessed losses. Specifically, metals experienced the most significant drop at -1.6%. The overall performance of the market, including sectors such as FMCG and auto, also displayed a downward trend but to a lesser extent.
Mid Caps & Small Caps Performance
Despite this market drop, the silver lining in this situation was the relatively minimal decline observed in mid-cap stocks. Although there was a slight gap down in the morning, the market retained its level.
Small-cap stocks also experienced a slight decline by the end of the day, but no major movement occurred in this segment.
Bank Nifty
Consequently, the message conveyed by the market was that this decline primarily affected heavyweight stocks such as HDFC Bank, influencing the Nifty Bank. Within just three sessions, the Nifty Bank had dropped by nearly 1000 points, drastically deviating from the analysts’ expectations of consolidation and potential breakouts.
USD/INR
It is important to note that the Rupee demonstrated signs of recovery amidst the market drop. Despite the potential sale by Foreign Institutional Investors (FIIs), the Rupee maintained its stability, improving from 83.3 to 83.4. This indicates that investors are not panicking and withdrawing their investments.
Pick of the Day – Coal India
In light of the market conditions, Coal India is the pick of the day. After consolidating for six or seven sessions, the stock has made a newer high. Today, it displayed relative strength compared to other stocks amidst the market weakness.
This suggests a potential opportunity for discretionary investors to consider buying points and making purchases in Coal India. However, it is crucial to monitor the stock closely and ensure it remains above the support level at 268-269. Any significant drop below this pivot point may change the outlook for the stock.
Stocks like Coal India, displaying strength during periods of market weakness, provide valuable signals that suggest the weakness may not impact their stock prices significantly.
Download the WeekendInvesting App
If you have any questions for us. please write to us on support@weekendinvesting.com. You can also get on a 1-1 meeting with us should you need more clarity about the strategies or process.
