NEW DELHI: India’s equity market continues to reel under selling pressure as a rise in the US dollar and treasury yields on expectations of another interest rate hike by the Federal Reserve has made investors, especially foreign institutional investors (FIIs), nervous.
Combined with the weakness caused by the steep rise in crude oil prices, the benchmark indexes- Sensex and Nifty50 – have fallen about 4% each in the past 12 trading sessions (September 16-October 4).
Sensex, which peaked at 67,927 points on September 15, closed the Wednesday session at 65,226- its lowest closing since August 31.
The broader Nifty 50 index fell by 0.47% on Wednesday to close at 19,436, its lowest since September 1. Nifty peaked at 20,222 on September 15.Investors have lost nearly R 7 lakh crore in the last 12 sessions as the market capitalisation of all BSE-listed firms has come down from R328 lakh crore to R321 lakh crore during this period.
Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services, said that the recent spike in US Treasury yields has been taking a toll on equity markets globally, turning investors cautious in the near term. On Wednesday, the 10-year US Treasuries yield reached 4.88%, the highest since 2007, before receding below 4.8%. When the safe and secure treasury yields rise, equities’ risk-reward ratio becomes less attractive for investors. Bond yields across Europe, Japan and Australia also jumped significantly higher, which prompted investors to exit equity assets.
“This along with persistent FIIs selling has pulled the Nifty down by 4% from a recent high of 20222 levels. We expect weakness to persist in the market in the coming weeks till the headwinds recede,” added Khemka. FIIs had pulled out over $2 billion from the local market last month and have been net sellers so far this month as well.
Vinod Nair, Head of Research at Geojit Financial Services said that the strong US job data is reinforcing Fed’s hawkish stance and multi-year high US bond yields is signalling an impending interest rate hike.
Going ahead, market movement will depend upon the combination of global/local macros and earnings delivery along with management outlook. Market participants are also closely watching the RBI’s upcoming monetary policy announcement.