A 30 percent rise in oil prices makes both equities and economy vulnerable as higher oil prices increase utility, freight and transportation costs, adding to inflation
Typically, bond yields and equity markets work in inverse. Rise in bond yields make it an attractive asset class, as investors tend to sell equities and pump in more money into bonds. Image: Reuters/Shailesh Andrade/File Photo
Over-heated bond yields in the US and ever-increasing crude oil prices broke investors’ confidence on Indian markets. In the sharpest single-day decline since August, India stock markets lost over 1 percent on Wednesday as jittery investors rushed to take money off the table with the 10-year treasury yields in the US jumping to nearly 16-year highs or highest since 2007.
Typically, bond yields and equity markets work in inverse. Rise in bond yields make it an attractive asset class, as investors tend to sell equities and pump in more money into bonds.
During the day, the BSE Sensex tanked 868.70 points before closing at 66,800.84, losing 796 points or 1.18 percent. The 50-share index Nifty also declined 313.5 points, closing for trade at 19,901.40, down 231.90 or 1.15 percent.
Milind Muchhala, executive director, Julius Baer India, feels there are potential sources of intermittent volatility, such as the US Federal Reserve’s actions, rising commodity prices (especially crude oil), uncertain monsoon impact on crop production, upcoming state elections, and soft rural consumer demand.
“Foreign institutional investors (FIIs) flows, while previously robust, have started tapering off, possibly due to India's outperformance among emerging markets and potential US Fed rate hikes. It's important to remain slightly conservative as corrections can be swift. Despite intermittent corrections, the overall positive outlook for Indian markets remains, driven by economic growth, strong corporate earnings, robust expected inflows, and valuations in line with historical averages. Interim corrections should be viewed as opportunities to increase equity exposure for long-term investors,” he adds.