The Indian stock market experienced a significant decline on January 17 and 18, 2024, with the BSE Sensex and NSE Nifty indexes falling sharply. Several key factors contributed to this downturn.
1. HDFC Bank’s Q3 Results: One of the primary reasons for the market fall was the mixed Q3 results from HDFC Bank, a major player in the Indian banking sector. The bank’s stagnant margins for the second consecutive quarter negatively impacted investor sentiment, leading to a more than 7% drop in its stock. This decline heavily influenced the banking sector, which holds substantial weight in the benchmark indices.
2. Global Market Influences: The global equity market also experienced a selling spree, contributing to the downward trend in India. A notable factor was a statement from a key Federal Reserve official indicating that the US central bank should not rush to lower rates. This statement tempered expectations of early rate cuts, impacting global markets, including India.
3. China’s Economic Data: Additionally, China’s economic performance, particularly its December quarter GDP data, missed expectations, hinting at a patchy economic recovery. This news negatively affected Asian markets, including India, as mainland China’s Shanghai Composite fell by 1%, and Hong Kong’s Hang Seng tumbled by 3%.
4. Banking Sector’s Performance: The banking sector, beyond HDFC Bank, also contributed to the Sensex’s fall. Other major banks like ICICI Bank, Kotak Mahindra Bank, State Bank of India, and Axis Bank also saw declines, adding pressure to the market.
5. Concerns Over High Valuation: The Indian market had been experiencing high valuations, raising concerns among investors. After a three-month rally, investors began to book profits, leading to a market correction. This trend was particularly noticeable in the mid and small-cap sectors, which were seen as overvalued.
6. Domestic Economic Factors: Despite the Indian economy’s overall good performance and strong corporate earnings, these positives were already factored into market prices. Elevated valuations necessitated a correction. Additionally, the possibility of the US Federal Reserve not implementing the anticipated rate cuts in 2024 added to the uncertainty.
7. Sectoral Performance: Public Sector Undertaking (PSU) Banks were noted for outperforming in a weak market, attributed to their valuation comfort and bullish momentum in the PSU space. Experts expected PSU banks to post strong earnings, potentially continuing their outperformance.
The combination of domestic factors like the banking sector’s performance and global influences, including the US Federal Reserve’s stance and China’s economic data, contributed to the significant decline in the Indian stock market in mid-January 2024. This scenario underscores the interconnectedness of global and domestic economic factors in influencing stock market trends.