Markets extend sell-off after RBI governor Shaktikanta Das sounds caution

Shaktikanta Das
The domestic equity markets continued to reel from selling pressure with the benchmark Sensex extending its three-day sell-off to nearly 1,200 points, or over 3 per cent. Financial stocks led the declines after Reserve Bank of India (RBI) Governor Shaktikanta Das said he was closely monitoring non-banking financial companies (NBFCs) for signs of contagion and sees “signs of fragility” in some lenders. 

The benchmark Sensex fell 306 points, or 0.8 per cent, to 38,031 — its lowest level since May 17. The Nifty50 index declined 73 points, or 0.64 per cent, to 11,346. 

 
HDFC, HDFC Bank, Kotak Mahindra Bank, and Bajaj Finance — which were seen as safe-haven bets — fell the most among Sensex components. The sharp sell-off in these stocks sparked fears that the markets could hit even lower levels in the days ahead if the challenges faced by the NBFC sector are not contained.
  
 Shares of HDFC twins — HDFC and HDFC Bank — declined 5.1 per cent and and 3.5 per cent, respectively, together erasing over Rs 45,000 crore of their market capitalisation. Kotak Mahindra Bank declined over 3 per cent, while Bajaj Finance fell 2.21 per cent.

Sharp gains in Reliance Industries (RIL) and Tata Consultancy Services (TCS) helped offset some losses. RIL gained 2.5 per cent and TCS added 1.6 per cent — both making a 134-point positive contribution to the Sensex.

RBI Governor Shaktikanta Das, in an interview to a news agency, said the central bank had detected signs of fragility in some housing finance and other non-bank lenders. He said RBI was working closely to prevent a crisis in a systemically crucial non-bank finance company.

The Bank Nifty index fell 1.63 per cent, while Nifty Financial Services index dropped 2.6 per cent. Markets have already been in a fragile state since the Budget on July 5, where the finance minister announced an increase in tax surcharge for foreign portfolio investors (FPIs) with trust structure.

Since July 5, the broader markets have seen a 6 per cent correction with India’s market cap declining by nearly Rs 9 trillion.

The fall comes amid continuous selling by FPIs, who have been spooked by the high tax and government’s refusal to provide any relief. So far this month, FPIs have pulled out nearly $1.3 billion (over Rs 9,000 crore) from domestic equities.