NEW DELHI: Domestic equity market fell for the third straight session as diminishing expectations of early rate cuts by the US Federal Reserves added to the selling pressure caused by the Middle-East conflict. Dragged by US-sensitive IT stocks, the BSE Sensex fell 0.62% to settle at 72,943.68 on Tuesday NSE Nifty50 lost 0.56% at 22,147.90.
During the last three sessions, the two benchmark indices corrected 2.7% each. From hitting their all-time high level on April 10, the Sensex is down 2,180 points while the Nifty has shed erased points. “Heightened concerns arose after stronger-than-anticipated US retail sales, amplifying the assumption that the US Fed might delay rate cuts, leading to a notable uptick in the dollar index and US bond yields,” said Vinod Nair, head of Research, Geojit Financial Services.
The street was expecting the Fed to go for three rate cuts this year. Recent inflation, employment and retail data coming out from the US indicate fewer rate cuts. This is a major dampener for global equities but a positive for the bond market.
RBI may take a similar approach. Analysts at Morgan Stanley believe the Reserve Bank of India (RBI) is unlikely to lower rates in the ongoing financial year given India’s robust economic growth and changes in the US Fed’s policy direction. US 10-year bond yields surged 14 basis points to 4.66%, the highest level in 2024. Analysts believe yields could lead to foreign portfolio investment (FPI) outflows from emerging markets such as India. FPI’s sold shares worth Rs 4,469 crore (net) on Tuesday.
Besides bonds, gold prices are on the rise. MCX Gold rose Rs 300 to reach 72,600, Comex gold hit $2,370 with overnight gains. “Gold traded strongly as global markets reacted negatively to Israel’s statement regarding Iran’s drone attack retaliation, leading to increased safe-haven buying in gold prices,” said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.