Bank Nifty plunges 3%; experts say correction was due

By: | Published: January 7, 2015 12:08 AM

The Bank Nifty registered its worst fall since January 2014 and lost around 3.08%...

The Bank Nifty registered its worst fall since January 2014 and lost around 3.08% on Tuesday. Indian stocks, especially private and public sector banks remained under pressure following the rout in crude prices and concerns that Greece might exit the euro zone.

The Bank Nifty on Tuesday opened at 18,874.60 and touched intra-day low of 18,388.35 and finally ended at 18,430.75 down by 586.65 points or 3.08%. Market participants say that, although the sell-off on Tuesday was triggered by global factors, in the last one year the index has gained nearly 70% and was on course for some correction.

A fund manager from a leading fund house on condition of anonymity said, “I don’t think there is anything fundamentally wrong with the banking sector. We still believe, with falling current account deficit (CAD) and fiscal deficit, this is the sector to be invested in, for 2015. But valuations of many stocks had turned too expensive and some correction was expected. Investors can use such corrections to enter the quality names.”

All 12 banks in the Bank Nifty ended the day in the red, with the biggest cuts seen in Bank of India (-5.29%), ICICI Bank (-4.59%) and State Bank of India (-4.11%). The CNX PSU Bank index which represents public sector also lost 4.12% and ended the day at 4,104.60, down 176.55 points. Within the PSU banks index, the worst losses were seen in Syndicate Bank (-5.52%), Union Bank of India (-5.45%) and Indian Overseas Bank (-5.44%).

Gopal Agrawal, CIO at Mirae Asset Mutual Fund says, “What we have seen on Tuesday is a knee-jerk reaction to falling crude prices. We saw across-the-board selling and not only in the banking stocks. I think this is short term volatility as falling crude prices will benefit India.”

Market participants say that, overall the outlook for the banking sector is positive in the medium to long term but there might be some short term volatility due to the global factors. “In 2015 we might see substantive developments for banking sector in India; there might be new banks coming up and government rationalising foreign ownership norms. All these factors will help the sector, especially private banks,” concluded the head of equity at a top brokerage house.

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