PSU banks, metals among 4 reasons why Sensex tanked over 400 points

The S&P BSE Sensex and the Nifty50 extended losses on Monday as the session progressed even as global cues remained supportive.

The 30-share Sensex slipped below its key psychological mark of 34,000, while the Nifty50 was heading towards its crucial 10,300 mark.

Banking stocks, especially public sector banks, put pressure on the indices, meanwhile weakness in metal stocks and F&O expiry due later this week also impacted the sentiment.

1) Steep fall in public sector banks

A whopping Rs 11,500 crore financial fraud in Punjab National Bank hurt the sentiment in public sector banks with the Nifty PSU Bank skidding over 5 per cent to 2,982.10. Allahabad Bank, Union Bank, PNB, Syndicate Bank and Indian Bank shed the most, losing in the range of 6 per cent to 10 per cent on the NSE. Non-index stocks UCO Bank and City Union Bank also tanked up to 12 per cent.

Reuters reported on Saturday that Indian banks could take a hit of more than $3 billion from loans and corporate guarantees provided to diamond companies, according to a tax department note.

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UCO Bank slumped as much as 12.3 per cent to its lowest since April 2009 after the state-run lender said it had $411.82 million in exposure to fraudulent transactions carried out at PNB.

City Union Bank declined as much as 5.3 percent after its chief executive said “cyber criminals” hacked the bank’s systems and transferred nearly $2 million via unauthorised remittances to lenders overseas.

2) Metal stocks tank

Metal stocks were in focus after Tata Steel emerged as the front runner to buy the debt-laden firm. Tata Steel shares tumbled 6.7 per cent. However, Bhushan Steel hits its upper circuit of 20 per cent on the BSE.

Nifty Metal index was down over 2 per cent, led by losses in Tata Steel, JSW Steel, Jindal Stainless (Hisar) and Welspun Corp.

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Tata Steel is falling as its offer for Bhushan is at a premium, potentially hurting Tata’s profitability. The debt-to-EBITDA ratio will get distorted as its total debt is going to more than triple, while EBITDA will not even double, says an analyst with a domestic brokerage, who did not want to be identified, reported Reuters.

"Bhushan’s lenders now will have to take a haircut of as little as 30 per cent as opposed to previously expected 50 per cent," added the analyst.

3) F&O expiry due on Thursday

Sentiment remained cautious ahead of the F&O expiry of February series, which underwent a rollercoaster ride all through this series, beginning from all-time high on January 29 to steep fall post Budget 2018 and global weakness, followed by a brief recovery, only to be hit by heavy sell-off in public sector banks post PNB fraud.

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4) Sentiment turns negative

The so-called Dalal Street fear gauge India VIX suggested the market will remain volatile in the coming sessions with the index rising over 6 per cent to 18. Surge in India VIX indicates the market may move in either direction at a faster pace as compared to the recent past. In India, the volatility index has a negative correlation with the Nifty50. It means that every time VIX falls, Nifty rises and every time it rises, a fall looks probable.