Rising US bond yields, oil prices halt Dalal Street bull run

Mumbai: Indian stock indices ended weak for the first time in four sessions on Tuesday as higher US bond yields and firming oil prices dented sentiment. Though some late-hour liquidation of bearish bets helped pare losses, indices still ended in the red with concerns over default risk at China’s Evergrande Group adding to the jitters.

Retreating from the record of 60,412.32 set on Monday, the Sensex ended at 59,667.60, down 410 points or 0.7% from Monday’s close. The Nifty, which had hit an all-time high of 17,947.65 the previous day, ended down 106.5 points, or 0.6%, at 17,748.6. IT and private banking stocks led declines. “Bond yields rising in the US and elsewhere would take the shine off the growth stocks. Energy stocks will do well if oil prices go up,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.

Yields on benchmark 10-year US Treasuries were at their highest since June on Tuesday. US Fed Chairman Jerome Powell on Tuesday cautioned that the recent rise in inflation may last longer.

Inflation Fears

Last week, the American central bank indicated the process of winding down its liquidity programme is on track.

Rising oil prices added to the nervousness. Brent oil crossed $80 a barrel – hitting its highest since October 2018- on expectations that the current supply might not be enough to meet growing demand for fuel. Goldman Sachs said oil could touch $90 a barrel. “While we have long held a bullish oil view, the current global oil supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above-consensus forecast and with global supply remaining short of our below-consensus forecasts,” said the brokerage in a recent note.

Advancing crude prices is bad news for India as it imports most of its requirements. Investors fear firm oil prices could stoke inflation, which could force central banks to speed up the withdrawal of easy monetary policies.

Foreign portfolio investors (FPIs) sold Indian shares worth about Rs 595 crore on Tuesday and domestic institutional investors (DIIs) bought shares worth Rs 1,398 crore. The volatility index rose 2.7% to 18.54.

Bharti Airtel was the biggest laggard on the Sensex, down 3.7% at Rs 696.25. Tech Mahindra, Bajaj Finance, Bajaj Finserv, HCL Technologies, Infosys, IndusInd Bank, TCS, Asian Paints and HDFC fell 1-3%

Stock indices have not had any meaningful correction since March 2020 and few in the market were willing to predict a top on this near vertical rally. If a correction takes place, Holland estimates this at 5-10%.

Last week, stock indices powered through hawkish comments from the US Federal Reserve on the beginning of bond purchases tapering from November. They also shrugged off growing concern over China’s Evergrande debt crisis. The Sensex touched the 60,000 milestone for the first time on Friday.

The benchmark indices have gained about 25% this year, making India one of the best performing among major global markets.

A large part of the rally since March 2020 has been led by easy monetary policies of global central banks, reopening of the economy and vaccination being stepped up. Analysts see further weakness in the indices from the current level.

“On daily charts, the index has formed a bearish candle which indicates further weakness from current levels. However, as long as the index is trading above the 20-day simple moving average, the uptrend texture is intact,” said Shrikant Chouhan, head of equity research, retail, at Kotak Securities.

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