Sensex slides 871 pts in two days: Key factors spooking the markets

The S&P BSE Sensex and the Nifty50 indices have declined over 1 per cent in two days as global headwinds derail the rally in equities. Rising bond yields, fears of aggressive rate hikes by global central banks, and Covid-19 scare in China are among the key pain-points for investors.

The 30-pack Sensex index shed 388 points on Tuesday, falling 871 in two days. The NSE Nifty, meanwhile, hit a low of 17,462 in the intra-day deals today, slipping 254 points so far this week.

Analysts expect the markets to remain volatile in the near-term as investors are caught between tighter money supply and uncertain economic outlook.

“Market will continue to be choppy in the near-term, see-sawing between positive and negative news. The near-term headwind continues to be the rising US bond yields, which has crossed 2.8 per cent for the 10-year, and outflows from equity,” said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Here’s a low down of what’s dragging the markets:

Rising bond yields: Long-term US Treasury yields jumped to a three-year high, fueling a global rise in borrowing costs. Ten-year US yields climbed through 2.75 per cent for the first time since March 2019 on Monday as investors priced in the impact of the Federal Reserve’s tightening plan and accelerating inflation.

Meanwhile, back home, 10-year bond yields on Indian Govt-securities climbed to 7.19 per cent, their highest level since May 2019.

Rising bond yields make new bonds attractive, leading to outflows from equities.

Covid-19 surge in China: The economically important Chinese city of Shanghai continues to report record coronavirus cases since the pandemic began. The city reported over 26,000 cases on Sunday, despite being under lockdown. Meanwhile, the US State Department has also ordered all non-emergency government staff and their family members in Shanghai to leave amid the Covid surge.

China is one of the last remaining nations still committed to eradicating Covid, in contrast to most of the world which is trying to live with the virus in its Omicron variation.

New Covid variant: Japan has reported its first case of omicron XE — a new Covid-19 strain first detected in the UK — just as British cases of the subvariant rise, CNBC reported.

It comes as cases of the new strain have almost doubled in Britain, according to the latest statistics from the UK Health Security Agency. So far, XE has been detected in the UK, Thailand, India and Israel.

Inflation data: Markets also seemed nervous ahead of the inflation data for both India and the US, which is scheduled to be released later today.

India's retail inflation likely sped up to a 16-month high of 6.35 per cent in March, well above the Reserve Bank of India's upper tolerance band for a third straight month, a Reuters poll found.

While the RBI left key interest rates unchanged at last week’s monetary policy, the rate trajectory going-forward will be anchored to inflation rather than growth, governor Shaktikanta Das said.

This, analysts say, signals that days of easy money are over for India.

Technical outlook: The index placement on the daily chart depicts the lost traction due to the truncated week followed by the earning season. However, the markets’ undertone is likely to remain in the favor of the Bulls till 17,500 levels remain intact, said Sameet Chavan, Chief Analyst-Technical and Derivatives at Angel One.

“Looking at the recent price action in the index, 17,600 is expected to act as the cushion to any fall, followed by the sacrosanct support zone of the 17,500-mark. On the contrary, the bullish momentum could be seen once the critical resistance zone of 17,900-18,000 breached decisively,” he added.