A sharp sell-off in banking and financial stocks dragged the benchmark indices down on Friday. The Sensex fell 260.31 points or 0.84 per cent to end at 30,672.59, while the Nifty declined 67 points or 0.74 per cent, to close at 9,039.25.
The Bank Nifty declined 2.6 per cent, with several big names posting losses in excess of 4 per cent. Analysts said investors shelved financial stocks on worries that an extension in the moratorium would lead to a pile-up in bad loans.
The RBI on Friday extended the moratorium by another three months. The central bank also relaxed terms on interest payments.
Analysts said investors would have preferred an upfront recognition of NPAs, rather than a deferment.
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“Shareholders of banks are worried due to current economic conditions and the pain that is being postponed by the extended moratorium. The government and RBI may be using up all their ammunition a little prematurely. One wonders whether these relief measures would have been more impactful after the lockdown was completely lifted,” said Dhiraj Relli, MD and CEO of HDFC Securities.
The lack of any announcement from the RBI on a one-time restructuring of loans added to the disappointment.
“The RBI has not announced any relief on restructuring of loans to address the risk of rising asset quality issues, which has come as a disappointment. We expect equities to remain volatile, with a negative bias in the immediate term,” said Gaurav Dua, head (capital markets strategy), Sharekhan by BNP Paribas.
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Among major Sensex losers were Axis Bank (down 5.6 per cent), HDFC (5 per cent), Bajaj Finance (4.7 per cent) and ICICI Bank (4.3 per cent). Gains in automobile, technology, and consumer non-discretionary stocks helped mitigate the fall. Mahindra & Mahindra gained the most at 4.5 per cent, followed by Infosys, which rose 3 per cent.
Market breadth was negative, with total advancing stocks at 968 and those declining at 1,321 on the BSE.
“NBFCs’ loan book will take a hit. They will now be more dependent on banks for funding. There will be an increased risk of default in smaller NBFCs. This will lead to more consolidation,” said Abhimanyu Sofat, vice-president (research), IIFL.
Meanwhile, most global indices, too, remained weak on Friday amid escalating tensions between the US and China after Beijing planned to impose national security law in Hong Kong. US President Donald Trump slammed Beijing’s move and said the US would “address that issue very strongly”.
On a month-to-date basis, the Sensex is down 9 per cent, making it one of the worst-performing markets globally
in May.
