Tepid Tuesday: Banking stocks drag benchmarks down

Economic uncertainties caused by Covid-19, which could lead to a bleak credit growth, is also putting pressure on banking and financial stocks.

It was a tepid day for Indian equities on Tuesday, as the benchmarks were dragged down by Reliance Industries and select banking stocks. The benchmark Sensex lost 190.1 points or 0.6% to close at 31,371.12. The broader Nifty50 declined 0.4% or 42.65 points to close at 9,196.55. Weak performance of the Asian markets also dampened the sentiment of the stock markets.

After falling 124.9 points intraday, the Nifty50 witnessed buying in the last hour of trade and ended the day marginally lower. The shares of RIL declined 5.7% as the conglomerate opened the subscription for its rights issue. The shares of banking stocks declined and remained under pressure for most part of the day. The Nifty PSU Bank had hit a low of 1,131.35, which was its lowest in 14 years, but recovered towards the end of the day closing 0.19% higher at 1,166.80. Financial stocks have been under pressure in anticipation of a rise in non-performing assets (NPAs). Economic uncertainties caused by Covid-19, which could lead to a bleak credit growth, is also putting pressure on banking and financial stocks. A report by Motilal Oswal Institutional Equities states that the weight of financials in the benchmark Nifty is now at a three-year low of 33.9%. “Financials’ loss has been the gain of defensives like consumer, technology, pharma and telecom,” said Motilal Oswal in its report.

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Nifty Bank was down 0.46% on Monday. The biggest losers were Federal Bank, Kotak Mahindra Bank, Bandhan Bank, HDFC Bank and IDFC First Bank, down by 3.7%, 2.57%, 1.65%, 1.45% and 0.7%, respectively.

The markets opened in the negative territory due to the tepid performance of the Asian markets. Benchmarks in China, South Korea, Taiwan and Hong Kong were down between 0.1% and 1.5%. Many countries in Asia and Europe have started exiting lockdowns. However, this has led to a spike in Covid-19 cases which has caused investors to dump risky assets. The European markets at the time of press, were trading mixed with France down by 0.3% and the UK and Germany up by 0.6% and 0.9%, respectively.

Market experts are now redirecting their focus from FY21 to FY22. Edelweiss Securities in a report said the Indian economy has been dislocated, its opening-up (regulatory and business) is uncertain and there will be significant shifts, immediate and beyond. “We also believe FY21 — with its supply shocks — might be the markets’ focus, but is largely irrelevant. It’s FY22 that you need to play for, business scale, positioning and valuations. And this could be the ideal time to make some high-returns, moderate-risk and non-consensus stock calls,” said Edelweiss Securities in its report.

According to NSE data, the F&O segment witnessed volumes worth Rs 10.73 lakh crore and the cash market saw a turnover of Rs 53,061 crore on Tuesday. This is against the six-month average of Rs 14.2 lakh crore in the F&O segment and Rs 40,898 crore in the cash market. Foreign portfolio investors (FPIs) have remained buyers so far in May, sold equities worth $220.95 million on Tuesday, according to provisional data on the exchanges. Domestic institutional investors sold equities worth $48.39 million during the day’s trading session.

The biggest losers on Nifty were RIL, GAIL, Asian Paints, Cipla and Kotak Mahindra Bank, down 5.7%, 3.69%, 2.97%, 2.65% and 2.57%. The biggest gainers were Vedanta, NTPC, ITC, Bharti Airtel and Power Grid Corporation, down 12.4%, 5.9%, 4.45%, 4.42% and 3.53%. Nifty Midcap and Nifty Smallcap were down 0.7% and 0.67%, respectively. Sectorally, the losers were Nifty Private Bank, Nifty Pharma, Nifty Bank and Nifty Financial Services. The biggest gainers were Nifty Media, Nifty Metal, Nifty Realty, Nifty FMCG and Nifty IT.

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