Just a day after a rally, financial sector stocks came under selling pressure again. They took down the broader markets with them, with NSE’s Nifty ending the day at 11,234.55 a cut of 78.75 points or 0.70 per cent. Nifty lost almost half the gains that it had made on Wednesday. The BSE’s Sensex lost 297 points or 0.78 per cent to close Thursday’s trade at 37,880.40.
The volatility on Dalal Street was because of two reasons. First, it was the day of expiry of weekly contracts of Nifty and Bank Nifty. Secondly, and more importantly, the beginning of the earning season indicated that the banking system might witness more stress. IndusInd Bank’s quarterly results, declared on Thursday, showed that pressure on corporate loans had witnessed a sharp increase.
Given the fact that the bank’s corporate loan book was considered to be of a better quality, as compared to many other private and public sector banks, the Street was worried that if a good quality book was under stress, loan books of other banks might witness similar slippages. After the results, stock of IndusInd Bank tanked 6 per cent to close at Rs 1,228. As the sentiment soured in case of banking sector, Bank Nifty, which gained 1,000 points on Wednesday, gave up 700 points on Thursday.
It is likely that volatility in banking space might continue through the earning season. Also troubling the Street was the fact that nothing positive emerged on the US and China trade negotiation. Most major economies in the world are reporting lower manufacturing numbers, with global metal prices and metal stocks across Asia showing a decline.
It was a stressful day for mid-cap stocks with advances-declines ratio being in favour of the Bears. By the end of the day, all sectoral indices ended in the red territory. While it was the turn of banking sector, Friday trade would be governed by what happens to IT sectors which are going to react to result of tech major TCS. Its results were scheduled to be announced after trading hours on Thursday.
If the markets react negatively to the results, it would be the turn of IT stocks to drag the indices down. And if bank weakness continues, Bears may have another day to rejoice on Friday because, together with IT, banks constitute the biggest weightage in indices.
(Shilpa Nagpal is an analyst at Market Wizards Securities Pvt Ltd)