Banking stocks were among the worst hit as the Indian stock market came under heavy selling pressure this week, with the Nifty Bank index plunging nearly 1,800 points in just two days and slipping below the crucial 54,000 mark for the first time since early June.
The Nifty Bank index fell more than 1% to 53,786 on Tuesday, emerging as one of the biggest losers amid the broader selloff on Dalal Street. The decline came as investor concerns over possible steep rate hikes by the Reserve Bank of India (RBI) intensified, while rising bond yields further weighed on market sentiment.
The Indian central bank is set to hold its Monetary Policy Committee (MPC) meeting next week from October 5 to October 7. While the stock market is pricing in close to 125 basis points of rate hikes over the next one year, Nomura has a contrarian view. The international brokerage said that the Indian central bank’s monetary policy is at an inflection point. While India has so far sidestepped the rate hikes seen in other Asian economies, higher oil prices, a surge in food prices and Fed rate hikes have brought the RBI's monetary policy to this point.
It sees an 80% chance of the RBI announcing a rate hike of 25-50 basis points by December, with less chance of the rate hikes spilling over to February. The international brokerage sees a 20% chance of the Indian central bank hiking rates by more than 75 basis points in one year.
Meanwhile, bond yields extended their trend to hit fresh multi-year highs every day, further putting pressure on banking stocks. The yield on benchmark US 10-year Treasury notes surged further above 5.25%. The 30-year US bond yield jumped close to 5.7% while that on the two-year notes, which moves in tandem with Fed rate hike expectations, rose above 4.95%.
Rupee also tumbled past the 96 per dollar to touch a two-month low as oil prices continued to surge, intensifying investor worries about the impact on the net energy-importing economy. The rupee declined to 96.1450 against the American greenback.
Key technical levels for Nifty Bank to watch out for
Bank Nifty ended the previous session with a long bearish candlestick on the daily chart and decisively slipped below its 100-SMA on the weekly chart, indicating continued weakness in the trend, said Vatsal Bhuva, Technical Analyst at LKP Securities. However, RSI has entered the oversold zone, which may trigger a short-term bounce in the follow-up sessions, he noted.
Any such recovery should be viewed as an oversold bounce rather than a trend reversal, he warned, adding that index traders may adopt a sell-on-rise strategy. “The immediate support is placed at 54,000, while 55,200 remains a crucial resistance level to watch."
