Sensex records worst single-day plunge in 18 months. Should you book profits?

Helped by one of the worst single-day falls in HDFC Bank shares in the last three years, Sensex on Wednesday recorded its worst daily performance in the last 18 months. During the day, Sensex fell over 1,600 points or 2.23%. The previous worst percentage loss was recorded on 13th June 2022 when the index crashed 2.68%.

More than half of the decline in both Sensex as well as Nifty is attributed to heavyweight HDFC Bank, whose shares fell over 8% after investors were disappointed with flat NIM (net interest margin) at 3.4% in spite of wearing away of the ICRR impact and draw-down of some surplus liquidity.

Also read: HDFC Bank shares at mouth-watering valuation, say contra buyers after $10 billion loss


The HDFC Bank report card had a spillover effect on other banking stocks with Nifty Bank crashing over 4%. Kotak Mahindra Bank, ICICI Bank, IDFC First Bank, Axis Bank, Federal Bank and AU Small Finance Bank fell between 2-4% each.

Other financial stocks as well as PSU banks also fell under bear pressure while metal stocks plunged on demand concerns from China.

The impact of the selloff was also felt in smaller stocks with mid and smallcap indices falling 1% each.

On the other hand, Nifty IT remained unaffected as results of software exporters have given bulls enough hope of a turnaround in the calendar year 2024.

"Today’s market fall is led by banks on the back of HDFC Bank results, showing heightened levels of credit/deposit (CD) ratio beyond RBI’s comfort levels. This is the case with most other banks as well. Thus, the markets expect either margin pressure, in case banks go in for aggressive deposit mobilization, a slowdown in lending growth, or both. This development can lead to some de-rating of the sector," said Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS.

Also read: Top 5 factors behind today's market crash

However, the outlook on PSU banks hasn't diminished as analysts find more runway for growth. "Most of the PSU banks are likely to post a strong set of earnings. I believe their outperformance is likely to continue where Bank of India is my top pick in small PSU banks, while SBI from largecap names should also catch up the momentum," said Santosh Meena of Swastika Investmart.

After the significant up move, we have witnessed recently, analysts say markets are taking a breather, especially since valuations are higher than historical multiples.

On the global front, negativity is coming from the rising bond yields in the US (the 10-year yield is at 4.04 %) responding to concerns that the sharp rate cuts expected from the Fed this year may not materialise. "Now indications are that the Fed is unlikely to cut in March and the total cuts in 2024 may not be five or six that the market had partly discounted," said Dr. V K Vijayakumar of Geojit Financial Services.

(You can now subscribe to our ETMarkets WhatsApp channel)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)