A mixed set of quarterly results, dashed hopes of rate cuts globally, concerns over rich valuations, rising US bond yields and selling by foreign portfolio investors have dragged the BSE Sensex 2,505.02 points, or 3.20 per cent, since the equity benchmark hit a record high of 73,427.59 on January 16, 2024. A few index constituents such as HDFC Bank Ltd, ITC Ltd, Bajaj Finance Ltd, IndusInd Bank Ltd and Asian Paints Ltd have in fact entered a correction phase, falling more than 10 per cent since then.
On Monday, the 30-pack index hit a low of 70,922.57, down 673 points over its previous close of 71,595.49. “Frothy valuations of the broader market are a matter of concern. From the long-term perspective, safety is in large-caps,” said Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
HDFC Bank shares have fallen 17 per cent since January 16. The lender disappointed the Street with its quarterly results. Analysts said if the system CASA growth continues to remain anaemic, there will be a delay in HDFC Bank achieving the return on asset (ROA) and return on equity (ROE) levels necessary for a full valuation re-rating. On Monday, the scrip was trading 1.23 per cent lower at Rs 1,386.
“If system CASA growth picks up and HDFC Bank is able to mobilise market shares in line with recent history, a large earnings surprise may materialise and re-rate the stock significantly,” BNP Paribas said.
In the case of ITC, the Q3 numbers were largely in line with Street estimates but its largest shareholder British American Tobacco (BAT) recently suggesting a possibility of stake sale in cigarette-to-hotels conglomerate weighed heavy on the stock. Foreign brokerage Jefferies has cut its target price on the stock to Rs 430 from Rs 520 earlier. The cigarette stock is down 14 per cent since January 16.
Bajaj Finance Ltd shares are hit by deterioration in asset quality in the December quarter and concerns over elevated credit costs. For the BFSI sector as a whole, analysts said the gap between credit and deposit growth has sustained and the liquidity is tight, which may strain deposit rate and margin. Bajaj Finance fell 0.90 per cent to Rs 6,594.95. This stock is down 12 per cent since Sensex hit record high levels.
IndusInd Bank Ltd and Asian Paints Ltd are two other stocks falling over 10 per cent each since the Sensex high. For IndusInd Bank, December quarter was an operationally steady quarter but there was a slight miss in asset quality. Slippages in 3Q were elevated at 2.6 per cent annualised), mainly led by higher retail slippages in MFI and vehicle loans, Nomura India said in a recent note.
In the case of Asian Paints, there are some concerns over rising competition. Rich valuations do not any leave scope for a slip up in execution, PhillipCapital said.
“Any loss of market share in paints due to intense competition could be a significant trigger for valuation de-rating. We maintain Neutral on Asian Paints with a target of Rs 3,200 (50x FY26 EPS, in line with a three-year average PE of 52x) and recommend investors make hay while the sun still shines, i.e., use this opportunity to trim position ahead of Grasim launch,” it said.
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