5-day market slide: Bond yields, West Asia turmoil dampen capital flow

Domestic equity benchmarks continued their slide for the fifth consecutive session as foreign portfolio investors (FPIs) engaged in heavy selling. This was triggered by rising bond yields and the ongoing turmoil in West Asia rattling investors.

The S&P BSE Sensex concluded the session at 64,049, reflecting a loss of 523 points, or 0.8 per cent, while the National Stock Exchange Nifty ended at 19,122, marking a drop of 160 points, or 0.8 per cent. This marks the longest losing streak for both indices since February 2023 when a five-day losing streak occurred.

In the past five sessions, the Sensex has fallen by 3.6 per cent, and the Nifty by 3.5 per cent.

India’s market capitalisation has diminished by Rs 14.6 trillion in the past five trading sessions.

Provisional data from exchanges indicates that FPIs sold shares worth Rs 4,237 crore on Wednesday. In October, FPIs have been net sellers to the tune of Rs 11,304 crore.

On Wednesday, the 10-year US bond yield increased by 4 basis points, reaching 4.86 per cent. Rising bond yields are occurring as expectations mount for higher interest rates in the foreseeable future. This sustained rise in long-term yields is often viewed as a harbinger of a recession and prompts investors to withdraw their investments from the equity market. Additionally, the ongoing conflict in West Asia is a persistent cause of concern for investors.

On Wednesday, the Hamas-run health ministry in Gaza reported that the death toll from Israeli strikes had surpassed 6,546.

Andrew Holland, chief executive officer of Avendus Capital Alternate Strategies, voiced concerns: “The market’s risk profile will heighten if Iran becomes involved and drives up oil prices.”

The mixed earnings results from major US and European companies have compounded the troubles for investors. Market experts suggest that investors are grappling with the potential impact of high-interest rates and inflation on corporate earnings.

“Amid derivatives expiry, people are taking a more tactical approach. Results in India are as expected, but the expectations are quite high, and there’s no catalyst to spark excitement,” he added.

The future market trajectory will be influenced by the interest rate decision of the European Central Bank, as well as earnings and macroeconomic data from India and abroad.

The market breadth was weak, with 2,551 stocks declining and 1,140 advancing. Except for six stocks in the Sensex, all others declined. Infosys, which fell by 2.76 per cent, made the most significant contribution to the Sensex’s 1.5 per cent decline.

All sectoral indices, except the BSE Metal Index, experienced losses. Tata Steel, with a 1.1 per cent rise, was the best-performing stock in the Sensex.

Metal stocks rose after China unveiled plans for additional debt to boost infrastructure spending.

Profit-taking continued in midcap and smallcap stocks, with the Nifty Midcap 100 decreasing by 0.6 per cent and the Nifty Smallcap 100 falling by 0.2 per cent.

Vinod Nair, head of research at Geojit Financial Services, commented, “Investors have adopted a cautious approach due to expectations of a continued high-interest rate environment, which may slow down future growth. However, a positive strategy is evident in largecap stocks, as overall earnings growth remains sustained.”