Benchmark indices fell for a sixth day, their longest losing streak since February, as elevated bond yields and persisting worries about the Israel-Hamas war led investors to flee risky assets. The Sensex declined 901 points, or 1.4 per cent, to end the session at 63,148, its lowest close since June 16. The Nifty 50 index fell 247 points, or 1.4 per cent, to end at 18,875, its lowest close since June 27. Thursday’s decline was the worst single-day fall for both the indices since March.
The yield on the 10-year US Treasuries hovered close to the 5 per cent mark, dampening the appetite for equities. Foreign portfolio investors (FPI) sold shares worth Rs 7,703 crore on Thursday. The selling was partly offset by buying to the tune of Rs 6,558 crore by domestic institutions. Already, FPIs had pulled out over Rs 15,000 crore from domestic equities this month.
“If yields stay consistently above 5 per cent, that means the bond market expects further tightening. If US 10-year bonds are giving 5 per cent on a risk-adjusted basis, no market, including India, is giving that kind of return. And FPIs would rather take that 5 per cent, especially when they are sitting on decent returns from Indian equities. The current level of FPI selling can be managed with domestic flows, but if it doubles or triples, then we are in trouble. The real fall in Indian equities will occur when domestic investors also think along those lines and sell,” said UR Bhat, co-founder of Alphaniti Fintech.
In the past six trading sessions, the Nifty and the Sensex have tumbled nearly 5 per cent. The 10-year US bond yield has hardened 13 basis points to 4.97 per cent during this period. India’s market cap has dropped by Rs 17.8 trillion to Rs 306 trillion.
Fears of the Hamas conflict snowballing into a regional stalemate involving Iran and other oil-producing countries have also continued to rattle investors. On Thursday, an Israeli army statement said it took part in an overnight “targeted raid” as it prepared for a ground invasion. Any escalation of the conflict is likely to spike crude oil prices and complicate the task of central banks, who are grappling with taming inflation without pushing their respective countries into recession. The Brent crude was trading at $89 per barrel. Crude prices pose an additional risk to India as it imports more than three-fourths of its requirements.
“There is no sign of easing tensions. As long as there is no progress on de-escalation, investors are likely to think of the worst. Everyone is rushing to the exit, and that is reflected in stock prices,” said Bhat.
The decline in US tech majors and some other multinational giants due to either reporting weaker-than-expected earnings or acknowledging the impact of an uncertain environment added to the overall gloom. Investors are rethinking valuations amidst rising yields.
Some experts advised investors to look at quality stocks after the latest crash.
“Stocks that are overvalued and lack quality should be sold, while quality businesses can be accumulated at these levels. Focus on large caps and quality to navigate the current volatility in the equity markets,” said Naveen Kulkarni, chief investment officer, Axis Securities PMS.
Barring four, all Sensex stocks fell. HDFC Bank fell 2.2 per cent and dragged the Sensex lower by 219 points. In percentage terms, M&M and Bajaj Finance fell the most at 4.1 per cent and 3.5 per cent, respectively. Axis Bank gained the most at 1.7 per cent.
Overall, market breadth was negative, with 2,335 stocks declining and 1,330 advancing on the BSE. All Adani group stocks, barring four, fell after news reports that India’s accounting regulator is investigating the firm, which audits five of its group companies.