The benchmark indices posted sharp losses for the second day as a surge in bond yields hurt investor appetite for riskier assets. Sentiment took a dent after US Federal Reserve Chairman Jerome Powell failed to address investor worries regarding rising bond yields and inflation.
The US Fed chair said that the recent spike in yields had caught his attention, but didn’t give any indication of how the central bank planned to stem the rise.
He said the Fed would be patient in withdrawing support for the US’ economic recovery, as unemployment remained above the targeted level. The 10-year US Treasury yield once again went past 1.5 per cent after Powell’s comments.
After dropping as much as 685 points, the benchmark Sensex ended the session at 50,405, with a decline of 440 points or 0.8 per cent. The Nifty, on the other hand, closed at 14,938, a fall of 0.9 per cent or 142 points. Both the indices ended the week with a 2.6 per cent gain after declining over 2 per cent in the last two sessions.
The surge in yields has kept the markets guessing on whether it is a sign of ensuing inflation or an improvement in the economy.
“The broader market came under a lot of selling pressure, unnerved by the turmoil globally; short-term investors rushed to take profits in mid- and small- cap stocks that have risen substantially over the past few weeks. Nifty ended the week positively after two weeks of losses and recovered some of the lost ground even on Friday. However, investors in Indian equities will look at the trend of bond yields abroad to assume higher risk,” said Deepak Jasani, head of retail research, HDFC Securities.
Investors were keenly looking at the US jobs data and progress on the $1.9 trillion relief package there. The employment report is expected to give an update on the direction of the labour market’s recovery. The US Senate has started debating the $1.9 trillion stimulus package.
Analysts said some emerging markets may be in for a bumpy ride as investors transition from liquidity to growth-driven bourses as economic activity returns to normal. They feel a healthy correction will help normalise valuations.
“A higher bond yield reduces future earnings or cash flow projections, and therefore, premium valuations of equities become doubtful. The likely pick up in capital expenditures in FY22, and the impact of new reforms announced in the Budget to stimulate consumption activities should continue to support an ongoing rebound in corporate earnings. Hence, we believe that any meaningful correction in the market should be an opportunity to buy quality stocks at reasonable valuations,” said Binod Modi, head of strategy at Reliance Securities.
The Indian market breadth was negative on Friday, with total advancing stocks at 1,057 and those declining at 1,929. More than two-thirds of Sensex components ended the session with losses.
IndusInd Bank was the worst-performing Sensex stock and fell 4.8 per cent; SBI and Powergrid Corporation fell 3.03 per cent and 2.13 per cent, respectively.
Barring two, all BSE sectoral indices ended in the red. Metal and telecom stocks fell the most, and their gauges fell 2.2 and 1.7 per cent, respectively.