he Indian stock market received a knock-out punch in the last hour of trading on Monday after the news of the rise in the US 10-year treasury yields to over 5% broke.
The Sensex, which was down around 300 points before that, fell sharply by another 500 points between 2.30 pm and 3.30 pm.
The Sensex closed at 64,571.88 points – down 825 points or 1.26%. The Nifty 50 fell to its two-month low of 19,281.75, down 261 points. Investor wealth plunged by Rs 7.59 trillion – its sharpest since December 23, 2022.
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This sharp fall was fueled by expectations of a prolonged high interest rates in the US that drove US 10-year bond yields to 16-year high, besides other factors like ongoing geopolitical tensions in the Middle West.
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Said Nilesh Shah, MD and CEO, Kotak MF, “US rates remaining higher for a longer period is likely to impact capital flows into India. The return expectations of both portfolio investors as well as direct investors will get reset with higher rates in US.”
He added that higher rates in US will also slow down global growth putting pressure on India’s external trade.
Said A Balasubramanian, MD & CEO, Birla SunLife Mutual Fund, “Rising US yields on the back of strong growth and continued high inflation in US is a cause for concern for equity markets, given the gap between bond yields and earnings yields for the US market.”
However, he believes that the impact on the Indian market is going to be temporary since there could be some short-term impact on flows into Indian equity markets. But since the Indian economy is on a strong wicket and will continue to remain resilient.
“Improved fiscal situation, controlled current deficit, stable interest scenario combined with good corporate earnings should lead to limited impact on the Indian bond market and equity market too,” he added.
The midcap and smallcap indices took a bigger knock with the BSE MidCap fell 2.51%, while BSE SmallCap index dived 4.18%. According to Amnish Aggarwal, head, research, Prabhudas Lilladher, the valuations were already high and some correction was expected. “If the situation sustains as it is then further correction can’t be ruled out,” Aggarwal said.
Telecommunication and industrials indices were the top laggards with BSE Telecommunication declining 3.82%, followed by BSE Industrials falling 3.26%. JSW Steel (-2.99%), Tata Steel (-2.52%) and Tata Consultancy Services (-2.44%) were the top losers of Sensex.
Surprisingly, both foreign portfolio investors and domestic institutional investors were net buyers today. While, FPIs net bought shares worth Rs 252.25 crore, DIIs have purchased shares worth Rs 1,111.84 crore, as per provisional data from exchanges.
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Calling this a “normal phenomena” Pankaj Pandey, head, research, ICICI Direct said, “I will not really give too much weight to a single day buying figure. Amid concerns of elevated interest rate and geopolitical tensions, in a typical market cycle, 8-10% correction is possible at any point in time.”
The brunt of geopolitical conflict, elevated interest rates and rising crude oil prices was also felt by other Asian- Pacific markets. Jakarta Composite Index lost 1.57% followed by Shanghai Composite Index and PSEi, which fell 1.47% and 0.89%, respectively. Nikkei and KOSPI declined 0.83% and 0.76%.
