Sensex, Nifty crash: HDFC Bank, China GDP miss, 3 other reasons behind market fall

Domestic stocks took a beating on Wednesday morning and banking shares seemed to be the only culprit, following HDFC Bank's mixed set of numbers. But if one looks beyond the domestic market, the sentiment was fragile elsewhere as well, across Asia. Take mainland China's Shanghai Composite for instance, which was down 1 per cent, or Hong Kong's Hang Seng, which tumbled 3 per cent, thanks to China's miss on December quarter GDP data that hinted at a patchy economic recovery ahead. China also started posting youth unemployment data that was alarming. Besides, US stocks fell overnight amid a hawkish Fed commentary. There was not enough optimism for domestic stocks to keep bullish run intact.

The biggest culprit
HDFC Bank alone contributed 700 points to the Sensex's fall. Add ICICI Bank's 140 points and a 120 points combined contribution by Kotak Mahindra Bank Ltd, State Bank India and Axis Bank Ltd, Sensex indeed is in a trouble. HDFC Bank's margin disappointed and that the bottom line was largely supported by tax write-backs. Analysts see near term pressure on net interest margin (NIM). There are concerns over valuation multiples, as concerns emerge with respect to growth, as a large balance sheet would have a higher correlation with the macroeconomic environment.

Hawkish Fed commentary
Cues for India were weak since overnight fall in US stocks. Fed Governor Christopher Waller said the central bank should not rush to cut its benchmark interest rate until it is clear lower inflation will be sustained. This is even as he felt the US central bank was "within striking distance" of 2 per cent inflation goal. 
Waller said regardless of when rate cuts begin, the Fed must proceed "methodically and carefully," not make the sort of large, fast reductions used when the Fed is trying to bail out the economy from a shock or a pending downturn. Dow Jones fell 0.62 per cent while S&P500 ended 0.37 per cent lower overnight. 

China patchy growth drags Asia
China's GDP growth for the December quarter at 5.2 per cent fell short of the Reuters poll expectations of 5.3 per cent. Besides, China resumed releasing data on unemployment after nearly 6-month suspension. That figure stood at 14.9 per cent in December. Markets across Hong Kong (3 per cent), Korea (2 per cent) China (1 per cent) and Taiwan (1 per cent) fell. India was no exception. 

Dollar index, 10-year bond yield
Following a hawkish Fed commentary, dollar index climbed while the 10-year US bond yield also jumped. The dollar index, which compares the greenback against a basket of six major world currencies, hit 103 level mark in Wednesday's session. The 10-year US bond yield also moved past 4 per cent level to 4.07 per cent from 3.96 per cent in the previous session. 

Expensive India valuations

The BSE Sensex is up 19 per cent  while the NSE Nifty has gained 20 per cent in the last one year. Midcap and smallcap indices in fact have rallied over 50 per cent during the same period. Valuations for the domestic market are not reasonable.

Ray Dalio, founder and CIO mentor at hedge fund Bridgewater Associates says valuations in Indian market looks expensive. In an exclusive interaction with Business Today TV's Managing Editor Siddharth Zarabi, Dalio said markets do get overextended sometimes when a lot of buying happens and that they progress in cycles. Dalio said while the long-term outlook for India is very optimistic, it looks relatively expensive at the moment.

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