The outlook has  deteriorated rapidly  for  India’s  $433 billion banking  industry  after a rare  sell-off at  HDFC Bank Ltd., the  country’s largest  private sector lender. 

  An index  of the  nation’s  12 largest banks is  expected to have  its worst week since September,  wiping  nearly $21 billion in market value  as of Thursday’s  close. Two-thirds of  this massive  loss  was attributed to  HDFC Bank, whose quarterly  figures  showed falling net interest margins and weaker deposit growth. 

  Indian  lenders  enter  2024  with  their best annual  US dollar  gain  in four years. The sector was  considered  a  popular pick,  along with  technology stocks,  in an informal survey of market participants  conducted  by Bloomberg last month. HDFC  Bank’s  earnings  are  now  raising concerns over  reports from peers ICICI Bank Ltd., Kotak Mahindra Bank Ltd. and Axis Bank Ltd. 

  “The days  of  banks  trading  at more than three times their  book value  are  over,”  said Seshadri Sen, strategist at Emkay Global Financial Services Ltd. “Most large-cap banks are expected to  have  slower earnings growth in FY25  compared to previous  years, which  will pressure stocks.”  

  Goldman Sachs Group Inc analyst Rahul Jain wrote on Thursday that private-sector  banks and non-bank lenders “could also  struggle”  if they  seek  market share  of lending  at  a lower cost. interest charges because  liquidity  is still limited.  ICICI Bank and Kotak Mahindra will  announce their  quarterly  results  on  January 20 and  Axis Bank  is expected  to announce  them  on  January  23. 

  The  industry’s declining outlook is  bad news for the  entire  market. The  country’s  top five private lenders  account for  more than a quarter of  India’s  key NSE Nifty 50  index,  and banks accounted for 15% of the  index’s  gain  over the  year,  according to  data compiled by  Bloomberg. 

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