“The markets were awaiting a correction and the US bond yields touching 5% brought about that trigger,” said Nischal Maheshwari, CEO-Institutional Equities, Centrum Broking.
US risk-free rates were last at this level in July 2007, before Lehman Brothers had collapsed and the subprime sinkhole had swallowed a loan market anchored in complex derivatives to trigger a prolonged phase of quantitative easing by global central banks.
BSE’s Sensex fell 825.74 points, or 1.26%, to close at 64,571.88. The NSE’s Nifty dropped 260.90 points, or 1.34%, to end at 19,281.75. Analysts said technical indicators are pointing to further weakness and a drop in the Nifty below 19,200-levels could lead to the index falling to 18,800.
Besides concerns over US yields that anchor debt pricing globally, the Gaza conflict raised the likelihood of an increase in fuel prices, further denting the appeal of financial assets in a large oil importer such as India.
Dow Jones Industrial Average was down 0.15% at 33,078.13. S&P 500 trading 0.26% higher at 4,235 while tech-heavy Nasdaq Composite was up 0.80% at 13,085.96 at the time of going to press.
More Corrections Seen Ahead
Elsewhere in Asia, most markets ended weak on Monday after yields on the US benchmark 10-year treasury note advanced to 5.014%. Bond yields and prices have an inverse relationship, with yields climbing as prices fall.
The extended rout in US bonds comes amid expectations that the Federal Reserve is likely to keep rates elevated for a longer period to restrain inflation.
Of the 50 shares on the Nifty, 48 closed in the red with LTIMindtree, Adani Enterprises, Hindalco and JSW Steel declining 3-4%.
Beyond the frontliners, the sell-off was more severe with the Nifty Mid-cap 150 index dropping 2.7%, the Small-cap 250 index falling 3.8% and Micro-cap 250 plunging 5.1%. Across categories on the BSE, losers outnumbered gainers in the ratio 3253: 593.
The corrections are expected to sustain since the cost of money is still going up, said Maheshwari.
“The markets were holding up due to liquidity, but now they are likely to consolidate at 18,800-18,500 levels,” said Maheshwari.
Investors have been on the edge of late following the rebound in oil prices to above $90 a barrel in the past two weeks in the wake of the conflict between Israel and Hamas. Although Brent Crude futures eased 0.3% Monday to $91.85 a barrel, concerns that a full-blown confrontation in the Middle East could disrupt oil supplies from the region dented sentiment in the stock and bond markets.
“The geo-political conflict and forthcoming election jitters are triggering the correction in the markets,” said Amit Gupta, senior vice president and fund manager, ICICI Securities.
He said the corrections can extend further depending on the escalation of the geo-political conflict.
Foreign portfolio investors (FPIs) and domestic institutional investors net bought shares worth Rs 252.25 crore and Rs 1,111.84 crore respectively on Monday, according to provisional data.
What Must Investors Do?
Investors, Maheshwari said, must stay on the sidelines until yields have peaked out in the US and the geo-political scenario in West Asia is more stable.
