Bank Nifty down 2%, PSB index 4%: Reasons why bank stocks are falling today

Bank stocks today: The Nifty Bank index today fell 2.1 per cent in the intraday trade, to hit a low of 50,440.6 level on the NSE (National Stock Exchange)

Bank stocks, Bank Nifty today: Bank stocks, especially public sector banks, were in a freefall on Friday. The Nifty Bank index today fell 2.1 per cent in the intraday trade, to hit a low of 50,440.6 level on the NSE (National Stock Exchange).

 

The index was pressured by IndusInd Bank, AU Small Finance Bank, Canara Bank, Punjab National Bank, and IDFC First Bank. Barring IndusInd Bank's 20-per cent plunge, all other shares were down in the range of 4 per cent to 6 per cent.

 

That apart, ICICI Bank, HDFC Bank, Federal Bank, State Bank of India, and Bank of Baroda were down up to 2.6 per cent at 12:30 PM. By comparison, the Nifty Bank index was trading with 1.8-per cent dip and the Nifty50 was down 1.14 per cent.

 

 

Between the public and private sector banks, the former was nursing deeper losses. The Nifty PSU Bank index fell 3.7 per cent intraday today with all the 12 index stocks in the red. The Central Bank of India was trading over 4 per cent lower at the time of writing of this report, Canara Bank 3.8 per cent, Uco Bank 3.7 per cent, Punjab and Sind Bank 3.6 per cent, and Indian Overseas Bank 3.14 per cent.

 

The Nifty Private Bank index, on its part, declined 1.8 per cent intraday.

 

Among individual stocks,  a weak set of Q2 FY25 results triggered panic selling in IndusInd Bank shares on Friday. During the intraday trade, IndusInd Bank share price plunged 19.6 per cent to a low of Rs 1,027.8 per share on the BSE -- a level last seen in May 2023. READ MORE

 

Why are bank stocks falling today?

 

According to analysts, fears of 'Higher for Longer' interest rates, coupled with persistent foreign investors' selling, were the key reasons for the profit booking in bank stocks. FIIs and FPIs hold a big chunk of bank stocks in their portfolios.

 

FPI, FII selling

 

Thus far in October, FIIs have dumped Indian equities worth Rs 98,086 crore, as per NSDL data. During the same period, domestic institutional investors (DII) have made net purchases of Rs 92,932 crore. NSDL data shows that the Financial Services sector saw the highest FPI outflows between October 1 to 15, totalling up to Rs 23,283 crore.

 

Previously, FPIs had bought Financial Services shares worth Rs 27,200 crore in September; saw outflows of Rs 12,008 crore in August and Rs 7,648 crore in July.

 

Spike in bond yields

 

That apart, a spike in US Treasuries, spilling over to Indian bond yields, has also dampened sentiment across the banking pack. A spike in bond yields negatively affects banks' securities' portfolio as it erodes the market value of the bond portfolio held by them.

 

US Treasury yields touched their highest levels in three-months on Wednesday as the bond market analyse the US Federal Reserve's next rate cut move, and amid the November US Presidential election.

 

Yields for the benchmark 10-year US Treasury note hit their highest level since July 25, hitting 4.26 per cent during the day on Wednesday, while the 2-year government bond yield climbed to its highest level since August 19 at 4.07 per cent. Higher yields suggest bond markets now anticipate higher interest rates in coming years than they did before the Fed lowered its rate last month.

 

Back home, 10-year government bond yields are up 1.7 per cent today, hitting a high of 6.94 per cent during the day. Thus far in October, bond yields are up 1.1 per cent.

 

Growth concerns

Fundamentally, the banking sector's non-food credit growth moderated to 13.6 per cent Y-o-Y in August 2024 vs 13.7 per cent Y-o-Y in July 2024, led by slowdown across all key

sectors.

 

Going forward, analysts at IDBI Capital expect credit growth to moderate in the range of 13-14 per cent led by moderation in unsecured portfolio like Credit card, Personal loan as well NBFC, which were impacted by increase in risk weights by RBI.