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India’s benchmarks indices fell for a sixth day on Thursday, their longest losing streak since February, as elevated US bond yields and persisting worries about the Israel-Hamas war led investors to flee risky assets.
The Sensex plunged 901 points, or 1.4 per cent, to end the session at 63,148 -- the lowest close since June 16. The Nifty50 index dropped 247 points, or 1.4 per cent, to settle at 18,875 – the lowest level since June 27. Thursday’s session was the worst for both the indices since March 13.
The yield on the 10-year US Treasury hovered close to the 5 per cent mark, dampening the appetite for equities. Foreign portfolio investors (FPIs) sold domestic shares worth Rs 7,703 crore on Thursday. The selling was partly offset by buying to the tune of Rs 6,558 crore by domestic institutions. FPIs have pulled out nearly Rs 23,000 crore from domestic equities so far this month.
U R Bhat, co-founder of Alphaniti Fintech, said high US bond yields meant that the bond market was expecting further tightening. “If US 10-year bonds are giving 5 per cent on a risk-adjusted basis, no market, including India, is giving that kind of return. And FPIs would rather take that 5 per cent, especially when they are sitting on decent returns from Indian equities,” Bhat said.
“The current level of FPI selling can be managed with domestic flows, but if it doubles or triples, then we are in trouble,” he added.
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“The real fall in Indian equities may occur when domestic investors will also think on those lines and sell,” Bhat said.
In the past six trading sessions, the Nifty and the Sensex have tumbled nearly 5 per cent. The 10-year US bond yield has hardened by 13 basis points to 4.97 per cent during this period. India’s market cap has dropped by Rs 17.8 trillion to Rs 306 trillion.
Fears of the Israel-Hamas conflict snowballing into a regional stalemate involving Iran and other oil-producing countries have also continued to rattle investors.
On Thursday, an Israeli army statement said it took part in an overnight “targeted raid” as it prepared for a ground invasion. Any escalation of the conflict is likely to spike crude oil prices and complicate the task of central banks, which are grappling with the task of taming inflation without pushing their countries into recession.
The Brent crude was trading at $89 per barrel. Crude oil prices pose an additional risk to India as it imports more than three-fourths of its requirement.
“There is no sign of easing of tensions. As long as there is no progress on de-escalation, investors are likely to think of the worst. Everyone is rushing to the exit, and that is reflected in stock prices,” said Bhat.
The decline in US tech majors and some other multinational giants due to either reporting weaker-than-expected earnings or acknowledging the impact of an uncertain environment added to the overall gloom. Investors are rethinking about valuations amid rising yields.
Some experts advised investors to look at quality stocks after the latest crash.
“Stocks that are overvalued and lack quality should be sold, while quality businesses can be accumulated at these levels. Focus on large caps and quality to navigate the current volatility in the equity markets,” said Naveen Kulkarni, chief investment officer, Axis Securities PMS.
Barring four, all the Sensex stocks fell. HDFC Bank fell 2.2 per cent and dragged the Sensex lower by 219 points. In percentage terms, M&M and Bajaj Finance fell the most at 4.1 per cent and 3.5 per cent, respectively. Axis Bank gained the most at 1.7 per cent.
Overall, the market breadth was negative, with 2,335 stocks declining and 1,330 advancing on the BSE.
