Yield spread points to the muted market returns, says BNP Paribas

BNP Paribas said it has a cautious stance on the Indian markets amid lack of positive catalyst for further earnings upgrades amid slowing global demand, lofty valuations and a slowdown in retail flows

The gap between domestic bond yields and earnings yield signals plateauing of market gains, brokerage BNP Paribas has said.

Currently, the yield on the 10-year government security is about 7.2 per cent, while that for Nifty50 earnings is at 5.2 per cent. Such a wide spread between the two, tilts the risk-reward in favour of debt investments.

“Historically, at this level, market returns have remained muted and thus warrants caution,” said Kunal Vora, head of India equity research, BNP Paribas.

Vora added that the domestic bond yields haven’t hardened as much as in some other markets, or the spread would