Sensex recovers half of losses to close 362 pts lower; 3 factors that weighed down market

The bears flexed muscles again on October 1 after the morning tussle with bulls. The benchmark indices fell nearly 2 percent intraday and the broader markets corrected by over 2 percent, but there was some recovery in late trade.

The BSE Sensex fell 737 points intraday, but trimmed losses in late trade to close 361.92 points lower at 38,305.41.

The Nifty50 also dipped below 11,300 levels and hit a day’s low of 11,247.90, but late trade recovery helped index cut losses. It ended 114.60 points lower at 11,359.90.

The market breadth was also weak as more than two shares declined for every share rising on the BSE.

Here are three factors that weighed down the market:

Sell-off in Banking & Financials

The investors’ sentiment was ruined by the fraud in Punjab and Maharashtra Co-Operative Bank as Nifty Bank index fell more than 1,000 points intraday to 28,077.35.

Yes Bank fell 30 percent intraday, and its market cap dipped below Rs 8,000 crore while RBL Bank plunged 15 percent despite the management clarification saying all branch activities were absolutely normal and the lender would remain profitable despite the need to make higher provisions ahead.

Analysts feel the sell-off is just an exaggeration of several banks’ exposure to NBFCs and realty sectors after the crisis in PMC Bank and Lakshmi Vilas Bank; as a result, bears stepped in.

Mumbai Police’s Economic Offences Wing on September 30 had registered FIR against Joy Thomas, former MD of PMC Bank who later confirmed about exposure to debt-laden realty company HDIL.

Lakshmi Vilas Bank also came in news as the Reserve Bank of India (RBI) placed lender under its prompt corrective action framework due to high level of bad loans, insufficient capital adequacy ratio, negative return on assets and high leverage.

The merger with Indiabulls Housing Finance looks difficult. As a result, it would also be difficult for Indiabulls Housing Finance to get a banking license as the housing finance company had started process for merger of Lakshmi Vilas Bank with itself.

Hence, unnecessary worries spread to small lenders, leading to sell-off in banks like RBL Bank, Yes Bank, IndusInd Bank (down 9 percent), said Lata Venkatesh of CNBC-TV18.

The RBL Bank management said it had the least exposure to HFCs & NBFCs combined in the entire industry and exposure to Indiabulls Group is just 0.25-0.50 percent of the book while Indiabulls’ Gagan Banga yesterday said putting a bank (Lakshmi Vilas Bank) under PCA did not mean the doors of the banks were shut, and he would not read too much into the PCA process initiated against LVB.

Yes Bank also clarified on September 30 that its exposure to HFC/realty companies in the news was secured and saw a cut of 30 percent in exposure over six months.

Ravneet Gill, the CEO of Yes Bank, told CNBC-TV18 that the lender was in a much better position than it was six months back and estimates on NPLs etc in the IDFC report were exaggerated. “Exposure bank to NBFCs are well known, nothing hidden while exposure to Indiabulls Housing has gone down 30 percent over last few mths, not very large,” he added.

He further said, “Any comparison with PMC Bank is very irresponsible and rumours of me leaving the bank is false.”

Lakshmi Vilas Bank was locked in 5 percent lower circuit while Indiabulls Housing Finance fell 5 percent. Among others, PNB, SBI, IDFC First Bank, Federal Bank, Bank of Baroda and Axis Bank were down 3-5 percent.

Nifty PSU Bank index fell 6 percent intraday while Private Bank index declined over 3 percent.

Overall these indices also corrected sharply in previous session amid reports of worries over exposure to NBFCs and realty companies after PMC crisis.

Meanwhile, DHFL has also said it has no exposure to either HDIL or PMC Bank.

Midcap and Smallcaps Under Pressure

The loss in broader markets was quite higher than benchmark indices due to sharp fall in several key stocks. The Nifty Midcap and Smallcap indices were down more than 2 percent.

DHFL, Indiabulls Ventures, Dish TV, Reliance Capital, RBL Bank, JSPL, Apollo Tyres, PNB, Indian Bank, Manappuram Finance, Tata Power, HUDCO, PFC etc were down 4-20 percent.

Technical View

The Nifty50 fell more than 1.5 percent intraday and formed a large bearish candle on daily charts.

The index has broken its crucial support of 11,251 intraday and hit an intraday low of 11,247.90 but bounced back from that low point amid buying support. Experts feel, if the index closes below 11,400 levels, there may be chances that index will hit 11,251 again in the coming sessions.

“A close below 11,390 shall extend the correction towards 11,251 kinds of levels,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, said.

Jaydeb Dey of Stewart Mackertich said candle pattern along with position of leading indicators pointing towards range-bound oscillation in the broader price band of 11,320-11,540.

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