RBI’s grim projection for NPAs hits bank stocks on Monday; pull share markets down

Foreign Portfolio Investors (FPIs) have remained buyers in July, pumping funds into Indian equities for three straight months.

Banking stocks fell on Monday in a weak trading session, dragging Indian equities down on concerns stemming from the sharper-than-expected spike in non-performing loans.  The Reserve Bank of India projected on Friday that the non-performing assets (NPAs) could spike to a two decadal high in fiscal year 2021. Muted global cues also added to the stock markets worries. The 30-share index Sensex was down by 194.17 points, or 0.51%, to close at 37,934.73. The broader Nifty was down by 62.35 points, or 0.56%, to close at 11,131.8 points.

The Nifty Bank corrected by 3.59% to close at 21,848.75 on Monday. The stocks reacted to the Financial Stability Report released by the Reserve Bank of India on Friday, which stated that the bad loans in the economy could rise to 12.5% in March 2021. This is against 8.5% in March 2020. The regulator stated that if the macroeconomic conditions worsened, the bad loans in the economy could rise to 14.7%.

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The biggest losers on Nifty Bank were ICICI Bank, Bank of Baroda, Punjab National Bank, HDFC Bank, and IDFC First Bank. The stock price of ICICI Bank crashed by 6.05% to close at Rs 358.7 apiece. ICICI Bank on Saturday had announced its June quarter results which saw higher provisions made by the bank as well as a decline in the loan moratorium book. Stock prices of Bank of Baroda, Punjab National Bank, HDFC Bank and IDFC First Bank corrected by 3.81%, 3.73%, 3.5%, and 3.34%, respectively. Devarsh Vakil, deputy head — retail research, HDFC Securities, said, “’There is uncertainty in the markets about the banking stocks which is making investors jittery.

Additionally, RBI’s report spoke about a spike in NPAs which has led to the investors taking profits from the banking stocks.” The fall in banking stocks comes at a time when the banking index has underperformed the benchmarks. Nifty Bank has till date risen by only 29.14% since March 23 whereas, Nifty has risen by 46.6% for the same period. The banking stocks have remained under pressure since March on concerns over NPAs and the uncertainty of credit growth in a slowing economy.

“The banking stocks may not test their march lows immediately, but once the clarity on increase in NPAs emerges post second quarter results, some of the weak banks will head towards March lows,” said Devarsh Vakil.

Foreign Portfolio Investors (FPIs) have remained buyers in July, pumping funds into Indian equities for three straight months. The FPIs have bought stocks worth $1.09 billion till July 24. On Friday, they bought stocks worth $53.9 million, provisional data shows whereas domestic institutional investors sold stocks worth $131.9 million. Additionally, the futures and options segment witnessed a turnover worth `13.18 lakh crore against the six month average of Rs 14.9 lakh crore.

Stock markets in Asian countries too, had a tepid trading session with bourses in China, Singapore, and Hong Kong trading flat to negative. China’s Shanghai Composite was up by 0.26%. Conversely, bourses in Singapore and Hong Kong were down by 0.1% to 0.4%. The European stock markets were also trading flat with bourses in France and the United Kingdom down by 0.1% each. Germany’s Dax index was trading 0.3% higher at the time of press. Dow Jones Mini Futures were up by 105 points.

Indian equities were supported by technology stocks during the day’s trading session. The biggest losers on Nifty were ICICI Bank, Zee Entertainment, HDFC Bank, Axis Bank, and IndusInd Bank down by 6.05%, 3.99%, 3.5%, 3% and 2.93%, respectively. The biggest gainers were Asian Paints, HCL Technologies, Infosys, Ultratech Cement, and Tata Consultancy Services, up by 3.53%, 3%, 2.63%, 2.31%, and 2.21%, respectively. Sectorally, the biggest losers were Nifty Private Bank, Nifty Bank, Nifty PSU Bank, Nifty Financial Service, and Nifty Pharma. Among the broader indices, Nifty Midcap and Nifty Smallcap were down by 1.3% and 0.6%, respectively.

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