Top Indian Firms Lose Rs 1.73 Trillion Last Amid Market Sell Off; HDFC Bank & LIC Biggest Drag

The Indian stock market witnessed a significant downturn, with the BSE benchmark plummeting 1,213.68 points, or 1.64%. This downturn led to a combined erosion of Rs 1,73,097.59 crore in the market valuation of six of the top-10 most valued firms. The primary factors contributing to this decline were weak equities, a cautious stance from the US Federal Reserve regarding rate cuts, and foreign portfolio investors (FPIs) withdrawing Rs 1,602 crore from the debt market.

HDFC Bank and Life Insurance Corporation of India (LIC) bore the brunt of this market turmoil, experiencing the maximum hit in terms of market valuation. HDFC Bank's market capitalisation slumped by Rs 60,678.26 crore to Rs 10,93,026.58 crore, while LIC's valuation tanked by Rs 43,168.1 crore to Rs 5,76,049.17 crore.

"According to Desh's analysis, the mean reversion trade has some room to run. MSCI China is still down 54% in US dollar terms from the high reached in February 2021. After the recent market rally, the MSCI China is now trading at 1.16x price-to-book as of the end of April, compared with a peak of 5.33x in October 2007. Jefferies' Quantitative Strategy team's price-to-book model suggests that, should history since 2002 repeat itself, MSCI China has a further upside of 35.4% over the next 12 months from the level at the end of April, with close to a 100% hit rate of delivering positive returns (see Exhibit 8). But clearly, the current macro environment is fundamentally more deflationary than during most of that period," Jefferies said in the report.

Reliance Industries, the most valued firm, also faced a significant erosion in its market valuation, dropping by Rs 36,094.96 crore to Rs 19,04,643.44 crore. Additionally, ICICI Bank and State Bank of India witnessed declines in market capitalization, with ICICI Bank's valuation falling by Rs 17,567.94 crore to Rs 7,84,833.83 crore and SBI's by Rs 11,780.49 crore to Rs 7,30,345.62 crore.

However, amidst the market turmoil, some companies managed to buck the trend. Hindustan Unilever saw an increase in market capitalization by Rs 33,270.22 crore to Rs 5,53,822.16 crore. Similarly, Tata Consultancy Services (TCS) added Rs 20,442.2 crore to its valuation, reaching Rs 14,09,552.63 crore. Bharti Airtel and Infosys also experienced gains, with Bharti Airtel's market capitalisation rallying by Rs 14,653.98 crore to Rs 7,38,424.68 crore and Infosys' going up by Rs 3,611.26 crore to Rs 5,91,560.88 crore.

"If this is favourable, there is the possibility for additional profits.The MSCI China private sector's estimated forward (next 12 months) dividend yield is still only 1.5%, with a forward dividend payout ratio of 20%. By contrast, the MSCI China SOE sector has an estimated forward dividend yield of 5.9% and a dividend payout ratio of 36% (see Exhibit 6). Meanwhile, on a trailing 12-month basis, MSCI China's trailing total yield (dividends and buybacks) has risen from 1.4% in early 2021 to 3.4% (see Exhibit 7)." Jefferies added.

Despite these fluctuations, uncertainty looms over the market due to the US Federal Reserve's indication of no rate cuts until inflation cools. This stance has raised scepticism regarding the possibility of an early rate cut, leading to an appreciation in the US dollar and a surge in US Treasury yields. Additionally, FPIs withdrawing Rs 1,602 crore from the debt market during the period under review have further added to the economic uncertainty.

The recent market downturn has highlighted the vulnerability of Indian firms to both domestic and international economic factors. As investors navigate through these turbulent times, maintaining a cautious approach and closely monitoring market developments will be crucial in mitigating risks and identifying potential opportunities for growth.

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