With the Yes Bank stock losing more than half of its value in a single day, the gauge for bank stocks declined 3.52%, or 1,013.90 points, to close at 27,801.45.
The Bank Nifty recorded its biggest fall in four years after the Reserve Bank of India (RBI) placed a temporary moratorium on Yes Bank and capped the withdrawal to Rs 50,000 per customer. The sell-off in the fourth-largest private lender, coupled with the concerns over Covid-19 spread, sent shivers across the board on Friday.
With the Yes Bank stock losing more than half of its value in a single day, the gauge for bank stocks declined 3.52%, or 1,013.90 points, to close at 27,801.45. Friday also marked the third such fall of over 1,000 points in the Bank Nifty since February 1.
The Nifty on Friday lost another 2.5% to close the session at a five-and-a-half-month low of 10,989.45 while the Sensex slid 894 points to settle at 37,576.62, down 2.3%.
Friday also witnessed sharp corrections in many frontline stocks, with as many 117 stocks on the BSE500 index testing their 52-week lows. With foreign portfolio investors pulling out money from both debt and equity, the rupee lost 47 paise on Friday and is currently 0.82% away from the record low seen in October 2018. The local currency ended the day at 73.78 against the US dollar. Overseas investors have sold equities and bonds worth $4.2 billion in the last nine sessions. The yield on benchmark 10-year bond slipped 5 basis points on Friday to close at 6.183, its lowest level in 11 years.
According to market participants, Yes Bank has raised money from mutual funds and life insurers for Basel III by issuing Tier-I bonds. The nature of these bonds is such that if the bank is declared defunct by the RBI, bonds will become invalidated. Another impact is that in some cases interest won’t be paid for these bonds. The markets seem to be anxious over who will absorb these losses. If the government manages to successfully lift the moratorium, there won’t be any long-term impact on the market.
Umesh Mehta, head of research at Samco Securities, said, “Yes Bank, with a reasonable balance sheet size, has essentially gone to a status quo mode. It will have a spillover effect on the wider economy. The selling in the Yes Bank stocks could have likely come over from the institutions than the public at large… we have seen similar instances during DHFL and Jet Airways.”
Dow Jones futures tumbled 810 points intra-day on Friday as the Dow Jones Index lost 3.6% in the previous day’s trade. As investors continued to pile into safe haven assets, the yield on 10-year US Treasury sank below 0.75% for the first time, while international gold prices surged to seven-year high of $1,685 per troy ounce.
According to ICICI Securities, coronavirus has increased panic in the global markets. On an average, developed and emerging equity markets have fallen 15% in just over a month. “Out of nine panic situations seen in the last 10 years, the Nifty has bottomed out within a month or two in six instances after posting an average decline of 11-13%. In three out of nine times, the Nifty has seen bottom formation in four to five months after posting average decline of 17%,” the domestic brokerage said in a note.
Back home, the Nifty PSU Bank Index fell 5.13% on Friday and has been hovering at its lowest levels in 11 years. State Bank of India plunged 12% intra-day before settling at 270.50, down 6.2% on the NSE.
The negative sentiments rubbed off on all sectors indices on the BSE. While the BSE Metal Index fell the most with a 4.4% decline, BSE Realty, BSE Bankex, BSE Finance and BSE Energy fell over 3% each.