Indian stocks have been witnessing heavy selling pressure since mid-September, owing to rising US bond yields and concerns about a potential rate hike by the US Federal Reserve. These concerns have, in turn, driven up the US dollar index to an 11-month high.
Furthermore, the consistent upward trend in crude oil prices has added to the negative sentiment in the market. This is particularly impactful for India, as the country heavily depends on oil imports, covering about 85% of its oil requirements.
Brent crude futures jumped 21% to date from their May 2023 lows, and similarly, WTI crude soared 26% from its May 2023 lows. Supply cuts imposed by OPEC+ nations and growing oil demand have been the driving factors in the crude oil surge.
In response to these factors, foreign portfolio investors (FPIs) have altered their investment strategy. After being net buyers for the last six months, they have now turned into net sellers. In September alone, FPIs withdrew more than ₹14,767 crore from Indian equities, as per media reports.
Amid this backdrop, the Nifty50 finished 9 out of the last 11 trading sessions in the red, losing 3.74% of its value, and from an all-time high of 20,222, the index is down nearly 4%. At current levels, the index is trading near a five-week low.
During Wednesday's trading session, (October 04) the index continued its downward trend for the second consecutive session, falling by 0.47% to reach 19,436 levels. The index hit an intraday low of 19,333.
The decline was triggered by a sharp selloff in US stocks during Tuesday's session, which followed the release of data showing a surprise increase in US Jolts job openings, suggesting the possibility of further tightening of monetary policy by the Federal Reserve.
This development led investors to sell US bonds, causing the yield on the US 10-year Treasury note to rise above 4.86%, hitting a new high since July 2007. Furthermore, the yield on the 30-year Treasury note is approaching the 5% mark, a level that has not been seen in sixteen years, according to Trading Economics.
"Strong US job data is reinforcing the Fed's hawkish stance, and multi-year high US bond yields is signalling an impending interest rate hike. Globally, investors are adopting risk-averse strategies due to inflation concerns and the strengthening US dollar," said Vinod Nair, Head of Research at Geojit Financial Services.
"In India, despite a robust economy, premium valuations of midcaps and the recent rally is augmenting consolidation. Interest-rate-sensitive sectors like real estate, banking, and metals are the most impacted category, while the FMCG sector is more optimistic in expectation of near-normal monsoon & festival demand. Auto is consolidating amid mixed growth numbers, and in this weak period, large-caps are trading safe to hold on," he added.
Rupak De, senior technical analyst at LKP Securities, said," The Nifty may continue to follow a bearish trend as long as it remains below 19500, with initial support likely around 19330. A fall below the said level might take the Nifty towards 19250–19200."
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