Indian equity benchmarks declined on Monday as 10-year US bond yields crossed the 5 per cent mark for the first time in 16 years, stoking recession fears and triggering risk-off trades. The Sensex ended the session at 64,572, a decline of 826 points or 1.3 per cent. The Nifty ended the session at 19,282, a decline of 261 points or 1.3 per cent.
The 10-year US bond yield on Monday rose to 5.01 per cent during the day, the highest level since 18 July 2007. Bond yields have been rising since the Federal Reserve, in its September meeting, indicated that it was expecting a slower path to rate cuts.
The US macroeconomic data in recent weeks reaffirmed the economy’s resilience and strengthened expectations of interest rates remaining higher for longer.
“When long bond yields go higher, it is usually a precursor to recession. It pushes investors to a risk-off trade. Given that there is a holiday on Tuesday, people are being cautious. Investors don’t want to go either long or short. If something favourable happens in Gaza, markets will recover, but if something escalates, you get hit,” said Andrew Holland, chief executive officer of Avendus Capital Alternate Strategies.
Investors are keeping a close eye on the Israel-Hamas conflict. On Monday, the health ministry in Gaza, run by Hamas, said at least 5,087 Palestinians have been killed by Israeli attacks in the last two weeks. Israel’s retaliatory attacks began after Hamas launched an unprecedented strike on Israel on 7 October, which claimed 1,300 lives.
“Both domestic and foreign institutions were net buyers on Monday, but still, the markets fell, which means retail investors must have been selling in a big way. People are generally worried about the Hamas conflict escalating and its impact. Rising bond yields added to the nervousness,” said UR Bhat, co-founder of Alphaniti Fintech.
Foreign Portfolio Investors were net buyers to the tune of Rs 252 crore on Monday, while domestic institutional investors bought shares worth Rs 1,112 crore, according to provisional data from exchanges.
The fall was steeper in the mid and small-cap indices. The Nifty Mid Cap 100 fell 2.6 per cent, and the Nifty Small Cap 100 fell 3.6 per cent. The decline on Monday was the steepest for both indices since 12 September 2023.
The market breadth was weak, with 3,253 stocks declining and 593 advancing. Barring two, all Sensex stocks declined. HDFC Bank fell 1.1 per cent and contributed the most to Sensex’s loss, followed by Reliance Industries, which fell 1.6 per cent.
Going forward, the quarterly results and macroeconomic data from the US and the Eurozone will determine the market trajectory.
“Even the earnings season has been mixed so far, thus not providing resilience to the market. We expect the market to remain volatile amid a rise in global uncertainties, while the stock-specific action is likely to continue in the market amid a busy results season. Investors are advised to shift focus towards large-cap stocks where valuations are comparatively comfortable,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.