 "BSE, NSE, Sensex, Nifty, stock markets")
India’s benchmark indices on Tuesday dropped to their lowest levels in one month on an intraday basis as rising bond yields and hawkish statements by two US Federal Reserve officials reignited fears of interest rates remaining higher for longer.
The Sensex ended the session at 65,512 after declining 316 points, or 0.5 per cent, while the Nifty slipped 110 points, or 0.6 per cent, to close at 19,529 as foreign portfolio investors continued their selling spree. The two indices made intra-day lows of 65,345 and 19,480, respectively — their lowest readings since September 4.
The yield on the 10-year US bond stood at 4.7 per cent on Tuesday, the highest since August 15, 2007. The rise in bond yields has further strengthened expectations of a rate hike by the Fed this year and put pressure on equities.
Federal Reserve Bank of Cleveland President Loretta Mester on Tuesday stressed the need to raise rates one more time this year and hold them at higher levels to achieve the Fed’s inflation target of 2 per cent. Mester added that the final decision would depend on how the economy evolves.
A day earlier, Fed Governor Michelle Bowman had said multiple interest rate hikes might be required to get the inflation rate back on track.
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Bowman said high energy prices could reverse the Fed’s progress concerning inflation.
Goldman Sachs on Tuesday warned that higher interest rates could lead to further declines in equities.
“The statements are an admission from the Fed that they are behind the curve in taming inflation and further hikes may be required, which has unsettled the markets. That’s why we saw bond yields moving up and foreign portfolio investors pulling from emerging markets over the past month. There’s a marked change in the Fed’s outlook on inflation compared to a few months back. The Fed may continue to administer sharp increases,” said U R Bhat, co-founder of Alphaniti Fintech.
Rising oil prices have complicated the fight of central banks against inflation. The Brent crude on Tuesday was trading at $92 a barrel.
“If oil prices go up beyond $100, then India could be in trouble as far as the balance of payments is concerned,” said Bhat.
Going forward, the quarterly results will determine the market trajectory.
“We have to watch whether quarterly results, especially from IT majors, have any good news for the markets. The IT pack’s results are unlikely to be robust if one goes by the trends internationally,” said Bhat.
The market breadth was mixed, with 1,905 stocks declining and 1,872 advancing. Close to two-thirds of the Sensex stocks declined. HDFC Bank fell 1.2 per cent and contributed the most to the Sensex loss, followed by Reliance Industries, which also fell 1.2 per cent.
The Nifty Smallcap 100 and Nifty Midcap 100 indices ended with gains of 0.5 per cent and 0.2 per cent, respectively. The India Vix rose 3 per cent.
“Buying in select heavyweights is capping the damage. Besides, resilience in the midcap and smallcap space also offers opportunities on the long side. We, thus, recommend focusing on stock selection while keeping a check on leveraged trades,” said Ajit Mishra, SVP - technical research at Religare Broking.
