Hi, we saw a downward momentum in indian stock market.
By around 1:15 pm, stock market indices like Nifty 50 and Sensex were down by more than 2%.
It can have many reasons.
So in this small update, we will tell you the major possible reasons behind the fall in the market.
So let's start today's video.
#1 Disappointing Q4 results.
As per experts, the first reason for today's market fall is the Q4 results of large-cap heavyweights such as TCS, Infosys, and HDFC Bank.
TCS was down 3.6% at the market opening today and Infosys also went down around 9%.
HDFC Bank also saw a decline of about 4.5%.
If we go by the recent Q4 results of TCS, it showed a 15.5% year-on-year revenue growth
But against that, the year-on-year profit growth was only 7%.
It clearly shows that there has been a decline in the margins of the company.
TCS' operating profit margin fell by 168 basis points in Q4 FY22 as compared to the same quarter last year.
The main reason behind the decline in margins is the rising cost of the staff.
In the quarter, TCS' employee expense YoY is up 20%.
This is happening in the IT sector due to high attrition.
Similarly, Infosys also reported year-on-year revenue growth of 18.5% and net profit growth of only 7.9%
Infosys' operating profit margin YoY declined by 300 basis points.
Here too, similar reasons for the decline in margins, such as increased cost of sales, of which a majority share comes from employee expenses.
And this component YoY is up 25.4% in Q4 FY22.
On the other hand, HDFC Bank's results also did not beat analysts' expectations.
The Net Interest Margin in HDFC Bank's Q4 FY22 result declined from 4.1% in Q3 FY22 and 4.2% in Q4 last year to 4% in the quarter.
CFO Srinivasan Vaidyanathan said that the asset mix of HDFC Bank has shifted to that of a higher rated segment after COVID-19.
Higher rated loans involve risk and hence banks have a lot of interest in them.
This is the reason why HDFC Bank's yields have seen a fall.
Experts are of the view that there may fall in HDFC Bank's reputation in the future
as HDFC Bank has increased its spending from current levels to maintain the pace of retail growth.
Among the companies, only 3 have a huge weightage in the Nifty 50, Sensex, Nifty IT, and Nifty Banking Index.
Currently, the combined weight of HDFC Bank, Infosys, and TCS in the Nifty 50 is around 22.67%.
In-vehicle Nifty IT, only Infosys, and TCS have a high weightage of 53.77%.
HDFC Bank also has 28.49% weightage in Nifty Bank and 22.71% weightage in Nifty Financial Services.
So Nifty IT, Nifty Bank, and Nifty Financial Services indices are down 4.86%, 2.51%, and 2.48%, respectively, around 1:15 today.
These three companies are considered market leaders in their respective sectors.
Therefore, market participants are expecting that the trends seen in the results will be reflected in the whole sector.
Hence, investor confidence in the overall sector has also been lost due to lower than expected results of the companies.
These trends are likely to repeat in the IT sector due to rising employee costs and other expenses due to high attrition seen in the whole sector.
Thereby, sector-wide margins are expected to see a decline.
Moreover, experts also agree that post-Covid, the IT sector was operating at very high valuations
And the current P/E of companies in the sector is 30-40% above their long-term median P/E.
Therefore, experts were of the view that the valuation of the IT sector may soon see a reversal.
And this margin fall could be the trigger of this mean reversal.
Apart from this, there is more to do with the volatility of the markets, viz. Higher inflation levels pushed up interest rates in US markets,
pushing US 10-year bond yields to their 4-year highs.
On Thursday, the S&P 500 was also up close to 1.21% down.
Another reason is the increasing COVID cases in China, due to which Shanghai has been under complete lockdown since April 1.
There has also been a recent spike in daily cases and deaths of COVID in India.
And for this reason, the expectations of another wave of Covid-19 have increased.
And the last reason is the ongoing Russia-Ukraine war.
The chances of resolution are less due to which oil prices are increasing.
This has a direct impact on inflation in the Indian economy.
As per the latest government data, retail consumer price inflation has fallen to 6.95%, and wholesale price inflation to 14.55% in March'22.
So these are all the big reasons which today Indian markets were trading in red today.
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