HDFC Bank Worries and Global Tensions Drag Indian Stock Markets Down

India’s stock markets dropped nearly 1% on Tuesday, marking a second day of losses as investors stayed cautious due to global tensions and the upcoming U.S. inflation report. Concerns over HDFC Bank’s lower-than-expected stock flows after MSCI’s decision to increase its weight in two phases—August and November—also dampened the mood.

The NSE Nifty fell by 208 points (0.85%) to close at 24,139, while the BSE Sensex dropped 692.89 points (0.87%) to end at 78,956.03.

The market sell-off deepened following news that the White House warned of potential attacks by Iran or its allies on Israel. This added to the existing global uncertainties, such as geopolitical tensions and recent issues highlighted by the Hindenburg report.

HDFC Bank shares took a hit, dropping 3.3%, as the market was disappointed by MSCI’s phased approach to increasing the bank’s weightage, which had previously driven market gains.

Traders were also cautious ahead of Wednesday’s U.S. inflation data, with many reducing positions before the market holiday on Thursday for Independence Day. A lower inflation report could lead to a U.S. interest rate cut in September, but traders were hesitant to hold positions overnight.

Market volatility increased, with the NSE’s Volatility Index rising by 1.9% to 16.17, indicating short-term risks. The Nifty could potentially drop to 24,000, and Bank Nifty might fall to 49,500, with further declines possible if these levels are breached.

Foreign investors sold shares worth ₹2,107 crore, while domestic institutions bought shares worth ₹1,240 crore. Mid-cap and small-cap stocks also fell, with the Nifty Midcap 150 down 0.77% and the Nifty Small-cap 250 down 1.23%.

Meanwhile, other Asian markets saw slight gains, with China up 0.3%, Hong Kong rising 0.4%, South Korea gaining 0.1%, and Taiwan up 0.1%. In Europe, the Stoxx 600 index was down 0.1%.