As the stock market tanked again on weak global cues, banking stocks led the fall, plunging 7.75 per cent on Tuesday amid signs of new pressures on the US financial system.
Reports of widespread credit card defaults in the US heightened fears that the financial turmoil in the world’s largest economy, triggered earlier by a housing mortgage crisis, was getting worse.
The news drove down stock markets worldwide, hitting banking shares the most, and India was no exception. The 30-share Sensex of the Bombay Stock Exchange fell 654 points, or 4.9 per cent.
“Banking stocks in India and Asia got degraded leading to major correction in the sector,” said Ketan Karani, head of research, Kotak Securities.
The correction was bigger in India, as banks here have seen their shares rise too much too fast during the bull run that lasted until a few months ago, Karani said.
On Tuesday, foreign institutional investors sold heavily.
“FIIs’ have gone negative on the financial sector, resulting in pressure on the banking stocks,” said Amitabh Chakraborty, president equity, Religare Enterprises.
Analysts attribute the latest fall to global factors.
There are fears “of a rise in the credit card default numbers, which will be a setback for the US financial and banking industry,” Chakraborty said.
Those fears surfaced on top of revelation that two leading mortgage companies in the US -- Fannie Mae and Freddie Mac -- might go bankrupt. “This is weakening the already weak investor sentiment in the market,” Karani said.