October 26, 2023

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War worries, high US bond yields keep markets jittery | Business News

3 min read

Joining a global market slide, Indian markets fell for the sixth consecutive day on Thursday as investors turned risk averse amid fears over the ongoing Israel-Hamas conflict and surge in 10-year US government bond yields.

The Sensex declined 900.91 points, or 1.41 per cent, to end at 63,148.15 even as foreign investors pulled out funds from stocks on Thursday. The Nifty closed at 18,857.25, down 264.9 points, or 1.39 per cent.

In the last six trading sessions, the 30-share BSE has slipped by 3,280 points, or 4.9 per cent, and the Nifty 50 dropped by 954 points, or 4.82 per cent.

Analysts warn that the markets might take a turn for the worse if the Israel-Hamas conflict spreads to other neighbouring countries. If crude oil prices cross $ 100 per barrel, countries like India which are dependent on oil imports would be impacted. A major worry for the market is another round of spike in inflation and interest rates.

Bank of Baroda in a report said the US yield soared sharply inching closer once again to the 16-year peak of 5 per cent. This comes in the wake of better-than-expected US home sales, climbing to 19-month high (12.3 per cent in September 2023) as median house prices have fallen.

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Vinod Nair, Head of Research at Geojit Financial Services, said, “till date, the actual domestic Q2 results are below par in comparison to the excited earnings forecast earlier. Similar disappointments are visible in developed economies. Downgrade in earnings and valuation is arising due to risk of further slowdown of the economy due to geopolitical and elevated interest rates. Also selling pressure intensified due to expiry-led volatility influencing investors to stay cautious.”

Foreign portfolio investors (FPIs) are pulling out funds from the Indian market as concern over the Israel-Hamas war has prompted investors to opt for safe haven assets like the US Treasury and bonds. As the yield on 10-year benchmark US government bonds are close to five per cent, investors are exiting emerging markets for US bonds.

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FPIs have pulled out Rs 25,000 crore from the cash market in October so far. On October 25, foreign players sold stocks worth Rs 4,236 crore from the cash market and Rs 7,702 crore on October 26. The benchmark indices plummeted despite purchases worth Rs 23,000 crore by domestic institutions in October so far.

According to an analyst with a broking firm, there is risk-off in global equity markets triggered by a combination of economics and geopolitics. “The Israel-Hamas conflict continues to be a major headwind for markets. If the conflict lingers for long, it has the potential to impact global growth when the global economy is already in the midst of a slowdown,” he said.

In the near-term, however, the strongest headwind for the market is the stubbornly high US bond yields. “With the 10-year bond yield at near 5 per cent, FPIs are likely to be in the sell mode. Sectors like banking and IT which constitute the largest segments of the assets of FPIs are likely to be under pressure,” said an analyst.

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