 "Global woes spook mkts: Sensex sinks 793 pts, bonds weaken and rupee falls")
Hotter-than-expected inflation data from the US and fears of an impending Iranian attack on Israel unnerved investors across India’s financial markets on Friday, triggering a decline in equities, depreciation of the rupee, rise in bond yields, and rush to gold amid safe-haven demand.
The amendment to the India-Mauritius tax treaty also raised concerns about the impact on overseas flows as the move will lead to increased scrutiny of funds. Foreign portfolio investors (FPIs) sold shares worth over Rs 8,027 crore, marking the highest one-day selloff since January 18. Meanwhile, domestic institutional investors (DIIs) provided buying support to the tune of Rs 6,341 crore.
The Sensex ended the session at 74,245, declining 793 points or 1.1 per cent — the most since March 13. The Nifty 50 index ended the session at 22,519, with a fall of 234 points, or 1.03 per cent. In the previous session, both indices had ended at their record highs. The Nifty Smallcap 100 index, breaking its 14-day gaining streak, fell 0.45 per cent.
The latest macro data from the US led investors to revise their expectations for interest rate cuts by the Federal Reserve, with investors now pricing in fewer than two rate cuts by it this year. The 10-year US bond yield retreated and was trading at 4.5 per cent. On Thursday, it closed at 4.58, the highest level since November 13, 2023.
The rupee and Indian government bonds, too, weakened on Friday. The yield on the benchmark 10-year government bond surged by 7 basis points (bps), reaching its highest level since January 24; it settled at 7.18 per cent.
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The benchmark yield has risen by 12 bps in April, so far. Bond yields and prices are inversely related.
The rupee weakened 23 basis points versus the greenback as the dollar index strengthened to 105.82. The rupee settled at 83.42 per dollar on Friday. The local unit fell by 0.1 per cent in the week.
"Rising bond yields are due to higher inflation (in the US) and indicate that interest rates will remain higher for longer. Moreover, Asian markets were somewhat weak, which is why Indian markets came off from their highs," said Andrew Holland, CEO of Avendus Capital Public Markets Alternate Strategies.
Naveen Singh, vice-president of ICICI Securities’ primary dealership, said: “These levels should hold and not go beyond 7.20 per cent (yield on the benchmark bond). There are no local reasons for a selloff in bonds, and external factors have their limitations in terms of creating bigger selloffs.”
“Until India’s CPI is safe and it continues to print on expected lines (the retail inflation rate eased to a 10-month low of 4.85 per cent in March but remained above the Reserve Bank of India’s 4 per cent target), I do not think that there should be a major selloff,” he added.
Witnessing a safe-haven rush amid heightening tensions in West Asia, gold in the international market breached the $2,400-an-ounce mark for the first time on Friday, climbing as much as 1.2 per cent. The US and its allies believe a major missile attack by Iran or its supporting groups is imminent in retaliation for an Israeli strike on its embassy compound in Syria.
In the domestic markets, gold prices have risen 9 per cent this month to Rs 72,881 per 10 gram — closing in on the Sensex’s level.
Oil, too, rose 2 per cent on Friday evening and was set for a small weekly gain. Brent crude futures were up $2.19, or 2.44 per cent, at $91.93 a barrel by 7:10 pm IST, while US West Texas Intermediate crude futures rose $2.42, or 2.85 per cent, to $87.44 a barrel.
Going forward, the quarterly earnings and geopolitical situation in West Asia will largely determine the market trajectory.
“Earnings might give some direction, but if tensions in West Asia escalate, it will subsume all other factors,” said U R Bhat, co-founder of Alphaniti Fintech.
Market breadth was weak, with 2,448 stocks declining and 1,405 advancing. HDFC Bank, which is 1.10 per cent, was the biggest contributor to the Sensex’s decline.