Stocks drop 1% on deep selloff in HDFC twins

Mumbai: India's benchmark indices dropped 1% on Friday, wiping out the previous day's gains, as lenders - led by HDFC group stocks - led the selloff. Continued worries about the health of the US regional banks, which dragged Wall Street down on Thursday night, also contributed to declines.

The Sensex fell 694.96 points or 1.13% to close at 61,054.29, a day after the index surged to its highest in four and a half months. The Nifty declined 186.80 points or 1.02% to end at 18,069. Both the indices once again turned negative for the year on Friday, pulling back about 0.5% year-to-date.

Banking and financial stocks were the biggest losers on Friday with HDFC Bank and HDFC slumping close to 6% - the highest single-day fall in three years - after MSCI tweaked a rule for the inclusion of the merged HDFC Bank-HDFC entity that could result in some outflows after the deal is done. Bank Nifty slumped 1,024.25 points or 2.34% to end at 42,661.20.

"Friday's carnage in HDFC twins is what disrupted the market momentum," said Abhilash Pagaria, head, alternative and quantitative research, Nuvama Institutional Equities. "The market breadth has improved in recent weeks with 62% of the Nifty 50 stocks and 54% of the Nifty 500 stocks above their 200 DMA."

Money managers said uncertainty over the US Fed's interest rate trajectory in the wake of the stress in America's banking system is keeping the market nervous. "US regional banks are already facing the financial stress from the increase in interest rates, which are now seen to have a negative impact on the commercial real estate and housing market," said Andrew Holland, CEO, Avendus Capital Alternate Strategies.

VIX Climbs 4.79%
"That is a bigger concern for the US financial sector going forward." Holland expects the trade in Indian equities to be range-bound and sees the Nifty hovering at 17,000-18,000 levels. "I do not see any major catalysts for our markets to make any new highs at the moment," Holland said.

On Wednesday, the American central bank hiked key lending rates in what was its tenth increase in just a little over a year to tame inflation. In its post-meeting statement, the US Fed also potentially signalled halting rate hikes. Key policy rates in the US now stand at 5.0-5.25%, the highest since the pre-Lehman Brothers era in August 2007.

While the US markets digested another rate hike, PacWest Bancorp's move to explore strategic options deepened concerns about the health of regional banks after the collapse of First Republic Bank, the third major lender to fail since March. This resulted in the US markets falling for the fourth straight day in a row Thursday.

In Asia, major indices ended mixed in Friday trading while major European indices were in the green reversing previous-day losses.

Back home, foreign portfolio investors (FPIs) were net buyers in the cash segment worth Rs 777.68 crore, extending their run of net purchases to eight consecutive sessions.

IndusInd Bank declined more than 4%, extending its fall. Mining and metal conglomerates Tata Steel and Hindalco each fell more than 2%.

India VIX - a measure of the market's expectation of volatility over the near term - climbed 4.79% to 12.30.