Margin worries for private banks, Middle East war drag down Indian shares

Indian shares fell on Monday, led by private lenders after quarterly earnings pointed to pressure on net interest margins, while escalating conflict in the Middle East dampened sentiment further.

The benchmark Nifty 50 fell 0.39% to 24,238.5, while the BSE Sensex shed 0.57% to 77,708.52.

HDFC Bank, India’s largest private lender, fell 5.1%, its steepest drop in four months after in-line June-quarter profit was overshadowed by a sharper-than-expected drop in net interest margin.

Kotak Mahindra Bank and Axis Bank also fell 2% and 5.5%, respectively.

The three lenders were the biggest contributors to the benchmark Nifty 50’s losses, and overshadowed ICICI Bank’s 1.1% rise on better-than-expected earnings. Private sector banks and financials fell 2.3% and 1.2%, respectively.

Bernstein upgraded ICICI Bank to “outperform” from “neutral” after the results, while Investec downgraded HDFC Bank to “hold” from “buy”.

Reliance Industries was relatively muted despite beating the average first-quarter profit view on strength in its oil-to-chemicals and telecom verticals. The stock had jumped 2.4% ahead of the earnings on Friday.

Meanwhile, U.S. forces hit Iran for a ninth consecutive day on Monday as concerns grew over shipping through the Strait of Hormuz, pushing crude oil futures to $88 per barrel.

“Restoring full throughput through the Strait of Hormuz will take longer than a headline ceasefire implies, with freight and insurance costs still elevated,” said Prateek Nigudkar, senior fund manager at Shriram AMC.

“Global inventories have been very substantially drawn down leaving the world economy vulnerable to the next shock,” said Nigudkar.

Eleven of the 16 major sectors logged gains on Monday. The broader small-caps and mid-caps rose 0.2% and 0.6%, respectively.

Among stocks, ONGC gained 0.9% and Oil India jumped 4.2%, as higher crude prices boosted sentiment toward upstream producers by improving realisations and profitability.