Indian stock markets traded in the red for the second consecutive day on Wednesday after the latest economic data raised concerns around US interest rates and weighed on sentiment. Except for FMCG, all other sectors witnessed selling pressure.
In early trade, BSE Sensex tanked 533.13 to 64,978.97, and NSE Nifty plunged 153.35 points to 19,375.40. In the broader market, Nifty Midcap 100 fell 0.7 per cent, Nifty Small Cap 100 was 0.37 per cent down.
On Tuesday, Sensex settled 0.48 per cent down at 65,512.10, and Nifty fell 0.56 per cent to 19,528.75.
Sensex has gained just 1.7 per cent in the last three months, the worst July-September quarter in the last four years. The 30-share benchmark had jumped 8.3 per cent during the September quarter last year and around 13 per cent in 2021. Other indices, including BSE500, BSEAllCap, and BSE LargeCap, also witnessed a similar trend, according to a report by Mint.
US Treasury yields hit their highest level since 2007. The 10-year Treasury yield touched 4.8 per cent, hitting its highest level in 16 years. The benchmark yield has surged in the last month as the Federal Reserve pledged to keep interest rates at a higher level for longer and indicated one more rate hike by the end of the year.
The 30-year Treasury yields also touched their highest level since 2007 at 4.925 per cent. The average rate on a 30-year fixed mortgage was around 8 per cent.
Stronger-than-expected US job opening data also contributed to the surge in bond yields. According to seasonally adjusted figures in the recent Job Openings and Labor Turnover Survey (JOLTS), there were 9.6 million job openings in August, up from a revised total of 8.9 million in July.
The rise in Treasury yields lifted the US Dollar Index (DXY) touched its 11-month high of 107.217 on Tuesday, 3 October 2023.
“Given the global concerns of more US rate hikes along with the 16-year high US 10-year bond yield and the 7-month high Dollar Index, the sentiments remain dented, and this is resulting in profit booking. In the near term, we expect this weakness to persist with stock-specific action. Investors would continue to take cues from economic data to be released globally and domestically with all eyes on RBI monetary policy due on 6 October,” said Siddhartha Khemka, Head of Retail Research, Motilal Oswal Financial Services Ltd.
Foreign institutional investors (FIIs) have been selling Indian stocks after the rise in Treasury yields and the dollar. FIIs offloaded equities worth Rs 14,768 crore in September, according to NSDL data.
“The sustained rise in US bond yields, which has triggered continuous FII selling, is showing no signs of abating. The dollar index is now clearly above 107, and the US 10-year bond yield is at 4.83%. This means FIIs will continue to sell and the bulls will be on the back foot,” said VK VijayaKumar, Chief Investment Strategist at Geojit Financial Services.
Expectations of further interest rate hikes by the US Federal Reserve have turned the markets cautious. According to Prashanth Tapse, Senior VP (Research) at Mehta Equities, fresh concerns over interest rate hikes have emerged after the JOLTS report in the US showed a bigger-than-expected number of job openings in August.
Higher-than-expected US job openings data is another sign if a resilient economy that signals to the Federal Reserve keeping rates sthigher for longer.
Market participants are awaiting the RBI’s Monetary Policy Committee (MPC) meeting decision on 6 October. However, the central bank is likely to keep interest rates unchanged for the fourth consecutive time as retail inflation remains above the RBI’s threshold limit. Investors are looking for the RBI’s views on inflation trajectory and economic growth.
Srikanth Subramanian, CEO of Kotak Cherry, said the sticky inflation level remains a challenge given the fresh upsurge in global crude oil prices. “It will be interesting to observe the RBI Governor's tone during his address, especially after the US Fed chairman last month clearly outlined his intent to raise the rates further despite keeping policy rates unchanged,” he said.
Subramanian added that the RBI would have to evaluate its strategy considering the fact that an increase in interest rates in the US and no change in India will lead to money flowing from India, creating issues both on the forex reserves and currency front.