 "Surge in US bond yields spooks India, other EM stocks, currencies")
A surge in the benchmark US bond yields sparked fears of capital outflows from emerging markets (EMs), hurting their stocks and currencies. Domestic benchmark indices fell nearly 3%, the second-worst single day decline this year while the rupee dropped nearly 1%, most since June 24 when the UK voted to leave the European Union.
Other EMs such as Indonesia, Philippines, and Brazil fell between 3% and 8%. The 10-year bond yields in the US have increased to 2.15% compared to last week's close of 1.78. The sharp increase triggered a sell-off as investors worried that higher rates in the US would make riskier assets unattractive. The BSE Sensex lost 699 points, or 2.54% to close at 26,818.82, lowest since June 30.
The Nifty 50 ended at 8,296.3, down 229 points, or 2.7%, biggest drop in 2016 and most since February 11. The rupee closed at 3-month low of 67.25 a dollar, down 0.92% from its previous close of 66.62, mirroring losses in other EM currencies.
The government's demonetisation decision also weighed on the market performance with stocks in the automobile, consumer goods and consumer durables sector falling sharply to multi-month lows on concerns that the move will severely hurt demand in the near-term.
"The US election results have brought significant uncertainty to global and Indian markets. Meanwhile, the aftermath of demonetisation move could be short-term impact on economic activities in the December quarter," said Anand Radhakrishnan, chief investment officer (CIO), Franklin Templeton Investments, adding that the investors are keenly eyeing the US Federal Reserve's stance on interest rates.
Overseas investors pulled out a massive Rs 1,500 crore on Friday, adding to their previous two-day selling tally of nearly Rs 2,000 crore, provisional data provided by stock exchanges showed.
Foreign institutional investors (FIIs) have been taking off money from the domestic markets since October, which is causing volatility and market correction, analysts said.
Ravi Muthukrishnan, co-head- research at ICICI Securities said FIIs have been pulling out this quarter due to the overhang of US presidential election outcome and prospects of US Fed rate hike on global equity markets. He said that the volatility in FII could remain till December.
EMs, including India, over the last few years, have benefited from the loose monetary stance in the developed world. The latest selling was triggered by speculation the US Fed will come aggressively in boosting interest rates under a Donald Trump-led administration.
"Emerging markets will probably suffer from additional outflows of foreign funds for a long time with the outlook of a strong dollar and higher US interest rates," Komsorn Prakobphol, head of the strategy, Tisco Financial Group said to Bloomberg.
