The banking and financial sectors, which are considered to be the strongest pillars of the Indian stock market (Dalal Street), are currently going through a major crisis. Foreign investors i.e. FIIs have started such aggressive and ruthless selling in Indian bank shares, which market experts are calling a “nightmare”. According to official data, foreign funds are pulling out money from Indian banking and financial stocks at an average rate of Rs 1,100 crore per day.
This heavy selling has not only put Nifty Bank under pressure, but has also put brakes on the growth of benchmark indices Sensex and Nifty. According to market analysts and ET report, mainly three big reasons are working behind this merciless selloff. Let us also give you detailed information about this…
Being the most preferred sector for foreign investors
The maximum money and holding of FIIs in the Indian stock market has always been in banking and financial services. The stake of foreign investors is very high in giants like HDFC Bank, ICICI Bank and Kotak Mahindra Bank. In such a situation, whenever foreign investors need ‘profit booking’ or cash due to global uncertainty or geopolitical tension, they first sell banking shares because they are very liquid (easily sold).
Impact of US bond yields and strong dollar
At the global level, the policies of the US Federal Reserve and the strengthening of the Dollar Index are creating problems for the Indian markets. When bond yields increase in America, it becomes more profitable for foreign investors to invest in their country without any risk. For this reason, they are shifting money from emerging markets like India to safe US dollars and bonds.
Valuation concerns and credit-deposit ratio pressure
The Indian banking sector is currently facing a unique challenge. Loan growth of banks is strong, but in comparison, deposit growth is growing at a very slow pace. Due to this gap, the credit-deposit (CD) ratio of banks has reached a record level, due to which there is a possibility of pressure on their net interest margin (NIM) i.e. profits. Foreign investors fear that the earnings growth of banks may slow down in the coming quarters.
What is affecting the market?
Due to this selling by FIIs, the banking index is continuously seeing correction from upper levels. However, Indian domestic institutional investors (DIIs) like mutual funds and LIC are buying aggressively to stem the decline. Due to this support from domestic investors, the market has been saved from a major crash, but until this daily selling of ₹ 1,100 crore by FIIs does not stop, there is little hope of a big rise in bank shares.
