Indices slide as bond yields march ahead; Sensex falls 388 points

This is fifth decline in six sessions; analysts expect markets to react to inflation data today

The benchmark indices declined for the second consecutive session as bond yields – both in the US and India – continued to rise, prompting investors to reassess the risk-reward ratio for equity investing.

The 10-year US Treasury yield jumped to the highest since December 2018 to 2.82 per cent, while the domestic 10-year government security ended close to a three-year high of 7.19 per cent.

Investors’ appetite for risk assets has taken a hit as bond yields have hardened globally following the US Federal Reserve’s decision to aggressively tighten monetary policy to combat inflation.

After dropping nearly 666 points, the benchmark Sensex ended the session at 58,576, with a decline of 388 points, or 0.66 per cent. The Nifty ended the session at 17,530, a decline of 144 points or 0.8 per cent. This was the fifth decline for both indices in the past six sessions. Last week, the Sensex and Nifty climbed above 60,000 and 18,000, respectively, for the first time since January. Since then, both have dropped over 3 per cent amid sustained selling by foreign portfolio investors (FPIs).

On Tuesday, FPIs sold shares worth Rs 3,128 crore, while domestic investors bought shares worth Rs 870 crore.

Analysts said US inflation figures — which were released after market close on Tuesday, and revealed that consumer price index based inflation rose 8.5 per cent in March, the highest since 1981 – would strengthen the case for aggressive US Federal Reserve policy tightening. The US Fed is already expected to implement its fastest monetary tightening since 1994. Last month, the US Fed raised its benchmark interest rate by 25 basis points for the first time since 2018.

“Inflation in India is also expected to be on the higher side. It is expected to subside due to a reversal of commodity prices and an improvement in supply. The domestic market is also cautious in anticipation of March quarter results,” said Vinod Nair, head of research, Geojit Financial Services.

The rise in Covid-19 infections and subsequent lockdown in China is threatening to disrupt global supply chains again, even as they are already reeling from the impact of the Russia-Ukraine war. The supply-side disruptions and commodity price increases have left investors worried about whether the global economy is headed for a recession.

Brent crude oil prices rose a bit on Tuesday to trade at $102 per barrel. The oil prices had gone up after the beginning of the war, but fell after a spike in Covid-19 cases in China.

“[On Wednesday] markets will react to inflation data. Also, the European Central Bank’s policy outcome would have a bearing on the global market. The earning season has kicked in, and we expect overall good performance from the companies. Given government reforms and strong economic recovery, the long-term trend of the equity market remains positive. However, there might be hiccups in between,” said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services.

The market breadth was weak on Tuesday, with 2,316 stocks declining and 1,110 advancing.

Reliance Industries declined 1.9 per cent and contributed most to the BSE’s fall. Metal stocks fell the most, and their index fell 3.5 per cent on the BSE. Banking stocks cushioned the fall as Axis Bank rose 1.67 per cent, the most among Sensex components, while Kotak Mahindra Bank added 1.05 per cent.