US bond yield spike, rising Covid-19 cases in India drag indices

The index rose close to 500 points on opening after the US Federal Reserve (Fed) pledged to shrug off inflation worries for a while and keep the monetary policy loose through 2023

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Markets Sensex Nifty | US bond | stock market

The benchmark Sensex plunged over 1,300 points (or 2.7 per cent) from the day’s high on Thursday as the spike in US bond yields and rising Covid cases in India hurt investor sentiment.

The index rose close to 500 points on opening after the US Federal Reserve (Fed) pledged to shrug off inflation worries for a while and keep the monetary policy loose through 2023. However, the 10-year US Treasury yields jumped to 1.74 per cent — a 14-month high — as investors turned jittery over rising inflation.

The US inflation is expected to exceed the Fed’s 2-per cent target to 2.4 per cent in 2021. However, Fed Chair Jerome Powell views the surge as temporary, saying it will not change the Fed’s stance.

Rising yields in the US, coupled with a stronger US dollar, stoked volatility in the domestic market. The Sensex dropped to a low of 48,962 from the day’s high of 50,296.35. It finished at a three-week low of 49,216 — down 585 points, or 1.17 per cent. This was the fifth straight session of loss. The Sensex has lost 2,062 points, or 4 per cent, in the last five sessions. The Nifty closed at 14,558, or 1.11 per cent — down 163 points.

“The rise in US bond yields has remained a concern. Investors are cautious, given the taper tantrum experience. But the structural trend of a strong economic recovery and growth remains intact,” said Mohit Ralhan, managing partner and chief investment officer, TIW Private Equity.

Globally, investors are divided between those bullish on growth and those worried about rising yields. Rising infections and the prospects of fresh curbs to control the spread of the virus have added to investor woes.

Market players also said the bunching up of five IPOs this week has impacted the liquidity available to the secondary market trades.

On Thursday, India registered a spike of 35,871 fresh cases — the highest daily rise in three months. As a result, domestic markets are witnessing higher volatility than their global peers.

“The Indian stock market has been in a corrective phase amid rising US bond yields. Moreover, a clutch of IPOs and share sales by listed firms are taking liquidity away from the system. There’s an increasing number of Covid cases being reported across the country. The market may remain dull in the near term,” said Hemang Jani, head-equity strategy, broking and distribution, Motilal Oswal Financial Services.

Market breadth was negative, with 2,160 stocks declining against 821 advancing. Two-thirds of the Sensex’s components fell. HCL Technologies was the worst-performing Sensex stock, declining nearly 4 per cent.

Infosys and Dr Reddy’s Laboratories fell over 3.3 per cent apiece. Index heavyweight RIL declined 2.2 per cent.

Barring two, all the sectoral indices on the BSE fell. The IT index fell the most at 3 per cent.

“The short-term trend of the Nifty continues to be weak. Having placed at the lower support of 14,500 levels, one needs to be cautious of any upside bounce. A decisive move below the 14,500-levels is likely to open broad-based weakness in the market. In such a scenario, the Nifty could test the 14,000-levels in the next week,” said Nagaraj Shetti, technical research analyst, HDFC Securities.