Nifty Bank down 6.4% in 2 months: What's the reason?
What's the story
The Nifty Bank index has witnessed a major decline of nearly 6.4% over the last two months, with August alone accounting for a drop of over 4%. This marks its worst monthly performance since January 2024. The fall has been broad-based, with IndusInd Bank witnessing the steepest decline of 7.4%, followed by Federal Bank, ICICI Bank, Canara Bank, Punjab National Bank, and HDFC Bank losing between 5-7%.
Market impact
Major banking stocks underperform
The underperformance of major banking stocks has also dragged down the benchmark indices, with Nifty and Sensex falling by 1.3% and 1.8%, respectively, in August. The slump in domestic-focused stocks is largely due to a downturn in the bond market, where prices have recently worsened and yields have risen as they move in opposite directions.
Treasury concerns
Hardening yields raise concerns for banks
The yield on the Indian 10-year government securities rose to 6.6% in August, its highest since March 27. This was due to fiscal worries and muted demand weighing on sentiment. The yield ended the month 21 basis points higher, its biggest monthly jump since September 2022. The hardening yields have raised concerns that they could hurt banks' treasury income in Q2 of the current fiscal year.
Market fears
Bond market worries about widening of fiscal deficit
The bond market is concerned about a potential widening of the fiscal deficit after the government proposed GST rate cuts across key categories. The government is also said to be working on a supportive package for labor-intensive sectors amid higher US tariffs, which further worries bond investors about its impact on government revenues.