Gap between bond, earnings yields spells more pain for equity investors

Bond yields 380 bps higher than average earnings yield of BSE500 companies

The equity market might see more selling in the coming weeks, as there is still a large gap between the yield on the 10-year government bond and corporate earnings yield, despite the recent correction in the broader market. The bond yields are now higher by 380 basis points (bps), compared to the average earnings yield of BSE500 companies. This is nearly 150 bps higher than the 10-year average yield spread of 230 bps. One bps is one-hundredth of a per cent. (See chart).

Earnings yield is calculated by dividing a company’s latest trailing 12-months (TTM) net profit by its market capitalisation