Stock market crashes over 2% on HDFC Bank fall, fuel surge, US Fed hawkish outlook

Both surge in crude prices and HDFC Bank’s stock crash have dented the bit of positivity seen during the market’s 3-day relief run seen before the crash, and the hawkish policy outlook provided by the US Federal Reserve has only added to the selling pressure. The Nifty 50 index was at 23,242.95 points, down 533.35 points or 2.2% at around 12 PM. The BSE’s Sensex index was at 74,986.15 points, down 2.2%. Investor sentiment has soured, with the likes of L&T, Eternal, and Shriram Finance also down 4-6%.

HDFC Bank fall

The bank’s stock had fallen as much as 9% in early trade as Chakraborty’s comments sparked fears of potential regulatory lapses in the backend of the bank. “Certain happenings and practices within the bank, that I have observed over last two years, are not in congruence with my personal values and ethics,” he said in his resignation letter. The stock, which has among the highest weightage in the benchmark indices, is among the biggest laggards. The company’s American Depository Receipts had fallen as much as 7% overnight in the US.

In a conference call with analysts and investors earlier in the day, the bank said Chakraborty’s resignation was not due to regulatory issues at the bank. The bank said it was unaware of the issues that Chakraborty had stated in his letter. The stock has recovered a bit since and is currently down around 4%.

The Reserve Bank of India said there are no material concerns on record with respect to conduct or governance for the bank based on its periodic assessment. However, sentiment around the stock is likely to remain weak until further investigations into the claims made by Chakraborty.

Global brokerage Macquarie has removed the stock from its ‘marquee buy’ list following the developments as the bank might underperform in the near term, weighed down by the potential government issues. However, it still maintained a positive outlook for the longer term as the bank’s fundamentals remain strong with healthy return on assets.

Crude, natural gas prices surge

Crude prices rose as much as $112 a barrel and natural gas prices gained 5% after strikes on Iran’s South Pars gas field, which is the largest in the world. There were also strikes at some other important Iranian energy hubs.

The attacks are seen as a significant escalation in the ongoing war. In response, the Iranian military issued a list of potential targets for retaliation, including key energy infrastructure in Qatar, Saudi Arabia, and UAE. “As previously warned, if the fuel, energy, gas, and economic infrastructures of our country are attacked by the American-Zionist enemy, in addition to a powerful counterattack against the enemy, we will severely strike the origin of that aggression as well,” the Iranian military said in a statement published by Tasnim.

Post that, Qatar has already reported extensive damage at its Ras Laffan industrial site, another major producer of natural gas.

The Indian markets have already been reeling under the high crude prices and the country has been hit by a shortage of natural gas. India imports the majority of its crude oil from West Asia and natural gas from Qatar. While India, like many other countries, had been holding dialogues with Iran for safe passage of India-bound shipping vessels as Iran maintains its chokehold on the Strait of Hormuz, the latest escalation is likely to further disrupt these efforts.

US Fed outlook

The US Federal Reserve kept interest rates unchanged at its latest policy meeting, striking a hawkish tone. Fed President Jerome Powell expressed caution over inflation spiking due to higher energy prices.

“In the near term, higher energy prices will push up overall inflation, but it is too soon to know the scope and duration of the potential effects on the economy,” Powell said in a press conference. The Fed’s decision was a unanimous one, with 11 of the 12 members of the rate-setting committee voting to keep the interest rates unchanged.

Higher rates in the US make emerging markets such as India less attractive for foreign investors due to lesser interest rate differential. It comes at a time when persistent foreign outflows have kept the Indian market under significant pressure.