The fact that an increase in US bond yields will trigger a correction in equity markets has been a known threat for some time now. But what triggered this sudden spike in bond yields was Fed chief Powell’s statement that inflation may persist for a much longer time, said an analyst.
“It is too early to conclude that this is a trend reversal for markets. Perhaps the ‘ buy on dips’ strategy may again work out. But at the present elevated valuations, the risk is high. Investors may watch for consolidation in markets,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
How are bluechips doing
After opening in the red, benchmark indices slipped further lower. At 9.25 am, BSE flagship Sensex was down 442 points or 0.74 per cent to 59,225. NSE benchmark Nifty declined 100 points or 0.56 per cent to 17,649.
“For Nifty, 17,600 could be seen as the nearest support while near term resistance could be seen around 18,000 levels,” said Mohit Nigam, Head – PMS, Hem Securities.
In the 50-share pack Nifty, NTPC was the biggest gainer, up 6.20 per cent. Maruti Suzuki, Power Grid, Indian Oil, Coal India, ONGC, Bharat Petroleum, M&M and Reliance Industries were among other gainers.
Tech Mahindra was the top loser in the pack, down 7.96 per cent. HCL Tech, Bajaj Finserv, Divi’s Labs, Wipro, Infosys, Bharti Airtel, IndusInd Bank and Bajaj Finance were among those that traded in the red.
FACTORS DRIVING MARKETS
Good news
Evergrande crisis: China’s Evergrande Group said it plans to sell a 9.99 billion yuan ($1.5 billion) stake it owns in Shengjing Bank. This will be used to settle its financial liabilities due to Shengjing Bank, the company said. Its shares rose 12 per cent following the announcement.
Crude oil edged lower: Oil prices dropped having touched a near three-year high the day before. Brent crude fell 0.83 per cent to $78.25 per barrel. US crude dipped 1.09 per cent to $74.47 a barrel.
Bad news
US default?: The Biden Administration is stuck in contentious debt ceiling negotiations that could lead to a government shutdown, and a possible default on its obligations to creditors.
Yields rise: Benchmark US 10-year rates have gained 25 basis points in five sessions and were last at 1.5513 per cent, having hit their highest since mid-June the day before, while the dollar index was at 93.752.
Broader markets
Broader market indices were trading lower, but outperforming their headline peers in morning trade. Nifty Smallcap was down 0.36 per cent while Nifty Midcap declined 0.24 per cent. Broadest index on NSE, Nifty 500, was down 0.54 per cent.
Gujarat Narmada Fertilisers, Sterling Wilson Solar, Trident, BHEL, JSW Energy and Oil India were gainers from the space while Coforge, Mindtree, Mphasis, Cyient, APL Apollo and Bajaj Elecricals were under selling pressure.
Global markets
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.43 per cent with Australia off 1.5 per cent and South Korea falling 2.06 per cent. The Hong Kong benchmark shed 1.2 per cent and Chinese blue chips were 1.1 per cent lower.
Japan’s Nikkei shed 2.35 per cent hurt by the general mood as the country’s ruling party votes for a new leader who will almost certainly become the next prime minister ahead of a general election due in weeks.
Overnight, all three major US stock indexes slid nearly 2 per cent or more, with interest rate sensitive tech and tech-adjacent stocks worst hit by the surging yields.
