Amidst the financial tumult, the BSE Sensex witnessed a substantial descent, plummeting over 1,000 points on Wednesday, chiefly propelled by the downturn in HDFC Bank. Presently, the Sensex stands diminished by 1,044 points, settling at 72,084 points.
HDFC Bank, grappling with a 6 percent decline after its financial disclosures, contributed significantly to the market’s downward spiral. Concurrently, various other banking entities experienced declines, with Kotak Mahindra marking a dip exceeding 2 percent, Tata Steel witnessing a 2 percent decrease, and ICICI Bank undergoing a 2 percent contraction.
Anticipating a near-term downturn, V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, suggests that the market might face a mild weakening due to adverse global and domestic indicators. The international pessimism is attributed to the escalating bond yields in the United States, where the 10-year yield has surged to 4.04 percent. This rise is a response to apprehensions that the anticipated substantial rate cuts from the Federal Reserve may not materialize as expected.
Current signals indicate a reluctance on the part of the Fed to enact cuts in March, and the aggregate cuts projected for 2024 might not reach the five or six figures that the market had partially factored in. This development is poised to exert a drag on global equity markets.
On the domestic front, despite a robust economic performance and favorable corporate earnings, these positives seem to be already factored into the pricing, leading to elevated valuations that warrant a correction.
The mid and small-cap segments appear disproportionately overvalued, sustained at elevated levels primarily by the abundant liquidity prevalent in the financial system. Vijayakumar advocates considering profit booking and reallocating funds to fixed-income instruments as a prudent move in the current scenario.