Banking stocks collapsed in a heap on Tuesday on apprehensions that the Reserve Bank of India would raise the key policy rate at its forthcoming monetary policy review meeting in early October.
Banking stocks collapsed in a heap on Tuesday on apprehensions that the Reserve Bank of India would raise the key policy rate at its forthcoming monetary policy review meeting in early October. A rise in rates typically drives down the value of bonds, resulting in mark-to market losses for banks.
The fears arose because of the continuing depreciation of the rupee which hit a record low on Tuesday. Moreover, bond yields have been moving up after hitting 8% on Monday. The Bank Nifty plummetted by 388.75 points on Tuesday, or 1.40 % to 27,430.75, posting its biggest single-day fall in three months.
Thanks to the fairly steep rise in yields over the past year, banks are already grappling with losses in their bond portfolios. The 10-year paper ended Tuesday’s session at 8.063%, the highest level seen in nearly four years.
The rupee has lost 2% in the last five days with the fall attributed to a number of reasons including the rising crude prices and fall in the emerging markets currency basket. Since mid-August the global prices of crude oil have risen by 12.2% to $79.42 levels per barrel on Tuesday.
All the constituents of the Bank Nifty, barring Axis Bank, declined. IDFC Bank’s stock fell by 6.05% and ended the session at `45. Federal Bank fell by 4.15% and ended Tuesday’s session at `77.40, and Bank of Baroda fell by 4.05% to end the session at `145.55. The share price of Punjab National Bank and State Bank of India declined by more than 3%.
The Bank Nifty has gained 7.4% since the beginning of 2018 against benchmark Nifty’s gain of 9.4%.