Sensex, Nifty50 fall over 1.8%: Key reasons why
India's stock market took a big hit on Wednesday as Sensex dropped by more than 1,371 points (1.87%), and the Nifty50 fell 395 points (1.79%) to below 21,650. All sectors saw losses, especially banking stocks, which were hit hard by HDFC Bank's disappointing Q3 results. The broader markets, including the Nifty Midcap 100 and Nifty Smallcap 100 indices, also faced significant declines. Here are some key reasons behind the stock market's fall.
Banking stocks weighed heavily on overall market
Banking stocks experienced heavy selling, dragging down the overall market. HDFC Bank's share price fell more than 7% after announcing its December quarter earnings, causing Nifty Bank to drop over 3.3%. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, as told to LiveMint, stated, "Domestically, even though the economy is doing well and corporate earnings are good, all these positives are in the price and the valuations are elevated warranting a correction."
Profit booking on valuation concerns and weak global cues
Investors likely engaged in profit booking following a strong market rally, with Nifty50 surpassing 22,100 in the previous session. Fears of overvalued midcap and smallcap stocks also prompted selling. Additionally, weak global market cues pulled domestic indices lower. Asian markets experienced losses, and US stock market indices closed lower as bond yields increased. The yield on the benchmark US 10-year Treasury note rose by over 11 bps to 4.064%, negatively impacting risky assets.
Dampened US rate cut expectations
Expectations of a US interest rate cut in March were dampened by comments from US Federal Reserve Governor Christopher Waller. He said the US is "within striking distance" of the Fed's 2% inflation goal but cautioned against rushing to cut the benchmark interest rate until sustained lower inflation is evident. Waller also recommended proceeding "methodically and carefully," avoiding large, rapid reductions.
