How are the Markets Looking ?

The Nifty, a major stock market index in India, plummeted to 21,500. This decline was largely influenced by the performance of HDFC Bank after its latest financial results were released.

The day started with a gap-down opening, with some minor recovery in the first hour followed by further downfall. The market is now approaching a crucial support level of 2400-2500, which was established earlier. If this support level is breached, the market could potentially decline further to around 2800-2900.

Despite this market volatility, it’s important to keep in mind that the recent run in the stock market has been quite impressive. With a 3000 point move and a 1000 points gain, going from 22,000 to 21,000 is not a significant setback. In fact, it could even provide an opportunity for a bounce-back if the support level holds.

Nifty Heatmap

One of the major contributors to this market decline was HDFC Bank. The bank faced a drastic drop in its share price, losing 8.4% in just one session. This represents a market capitalization loss of over one lakh crore. It’s worth noting that other private banks, such as Kotak Bank, Axis Bank, and ICICI Bank, also experienced similar losses, resulting in a 4% decrease in overall market capitalization for the private banking sector.

The impact of market volatility was not limited to the banking sector; it also affected other industries such as metals. As China’s market continued to decline, shares of Tata Steel, JSW Steel, Hindal Co, and cement stocks like Grasim and Ultratech also experienced significant drops. The automobile sector, including companies like Tata Motors and Maruti, along with Reliance Industries and ITC, were not spared from this downturn either.

Considering the overall market performance, it’s clear that investors had nowhere to hide on this particular day. However, the spotlight was mainly on HDFC Bank. Once considered a reliable and dependable financial institution, every result announced by HDFC Bank in recent times has been disappointing. Although its net profit saw a 35% increase, it failed to meet the market’s expectations regarding margins.

The bank’s poor performance on this day suggests that it may face challenges and volatility for a significant period. The delivery numbers are yet to be confirmed, but there are speculations of around 10,000 crores in selling. HDFC Bank’s fall from grace is surprising for many investors who regarded it as an almost infallible stock. When compared to global banks, HDFC Bank’s valuations are significantly higher, which can be justified by the potential growth of the Indian market in the coming decades. However, no matter how strong a company’s fundamentals or growth prospects may be, it cannot withstand a wave of selling. When a tsunami-like sell-off occurs, price action and market sentiment prevail and the concept which is at the core of WeekendInvesting ‘Bhav Bhagwan Che’ prevails.

Sectoral Overview

The impact of HDFC Bank’s decline can also be seen in the Bank Nifty chart, which indicates the overall performance of the banking sector. The chart shows a significant decline of 4.3% in the Bank Nifty on the same day HDFC Bank experienced its downfall. The metals sector saw a 3% decrease, while the Nifty itself dropped by 2%. Commodities and PSU banks were also affected, contributing to the overall market decline. IT, Consumption and FMCG were the least hit today. 

Mid-Small & Small Cap Performance

Small caps also damaged but relative to large caps contained the damage 14,400. Mid caps came off a little bit at 17,400.  

Nifty Bank Overview

The Nifty Bank’s consolidation between 46,800 and 48,700 has been left down. The gaps are now looking to be filled. Some support may arise at 44,800 in case we fall further. 

Highlights – HDFC Bank

The sharp decline is detrimental not only to the banking sector but also to the entire market. HDFC Bank’s loss in market value has been devastating, with the stock now trading at the same level as it did in the beginning of 2021. Investors who have held onto this stock for three years have witnessed their capital stagnating, while the broader stock market, represented by the Nifty index, has generated returns of 40-50% over the same period.

This scenario highlights the importance of evaluating the movement of individual stocks and considering opportunity costs in investment decisions. Sticking with a stock purely based on its legacy or branding may not be the best strategy if it fails to deliver significant returns over an extended period.

Highlights – Nifty Metals

Nifty Metal pivots are getting broken down, the highs are getting taken down on the downside, looking a bit week along with the Chinese market. 

Highlights – Nifty IT

Nifty IT is the only one which is looking a bit up after 2 down sessions. 

Global Movements

US markets remain at the crucial point where they are yet to break out to a new high. Whenever the market is at the point where it has already peaked previously, you could either make a double top and fall from there or go to a new all time high. Double top selling is very detrimental but once the move is higher than the previous high, you are a bit more secure in the strength of the market. 

Conclusion

While the market’s performance on this particular day may indicate an intermediate top, it is too early to conclude if this is just a short-term correction or the beginning of a long-term downturn. The fact that the broader market remained relatively stable, with small and mid-cap stocks not collapsing to the same extent, provides some confidence that the market decline may be sector-specific.

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