The Nifty 50's losing streak continued for the fourth consecutive trading session on Friday, resulting in a 0.33% decline to reach 19,674 levels. This week's performance has been particularly grim, with the index losing 2.57% – the largest weekly decline since February 2023.
Furthermore, the index currently stands 2.71% below its record high of 20,222, achieved on September 15. Several factors contributed to this decline, including the Federal Reserve's hawkish pause, a strengthening dollar index, outflows by Foreign Portfolio Investors (FPI), and the rise of US 10-year bond yields.
On expected lines, the US Federal Reserve, in its September 2023 meeting, maintained its benchmark rate at a 22-year high of 5.25%-5.5%. However, it hinted at the possibility of another rate hike later this year. This decision reflects the Fed's belief that it has room to monitor the effects of the 11 rate hikes initiated since March 2022 to combat rising inflation before making further adjustments.
Following the Fed's decision, the US Dollar Index rose above 105.5 levels, its highest since early March 2023. The index has so far this month rallied 1.97%.
Meanwhile, the Nifty PSU Bank index snapped its two-day losing streak on Friday with a spike of 3.51% to settle at 5,215. This came after J.P. Morgan on Thursday said that it will include Indian government bonds to its benchmark emerging-market index (GBI-EM GD) starting June 28, 2024.
There are 23 Indian Government Bonds (IGBs) presently meeting the index eligibility criteria, with a combined notional value of approximately ₹27 trillion, or US$ 330 billion. As a result, India’s weight is expected to reach the maximum weight threshold of 10% in the GBI-EM GD and approximately 8.7% in the GBI-EM Global index, said J.P. Morgan.
"J.P. Morgan’s inclusion of India in the Emerging Market Index is a very positive move from the perspective of the Indian economy in general and the capital market in particular. The foreign demand for GoI bonds will push down their yields. This will happen much earlier than the date for inclusion, which is June 2024."
"Most of the corporate bond yields are benchmarked to the yields on government bonds. Therefore, yields will decline pan India, across industries. The decline in the cost of capital will translate into higher profits for the corporate sector, which, in turn, will boost stock prices, enabling the stock market to scale higher levels," said Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
"The FIIs have reversed their ‘Buy India strategy’ which they have been following in the last 3 months, selling to the tune of ₹16,934 crores in September through the 21st. In the near term, FIIs may press for further selling in response to rising US bond yields. If this happens, it will open up opportunities for investors to buy quality large-cap stocks, particularly banking stocks, which will benefit a lot from the bond inclusion," he added.
Technical Outlook
Anand James, Chief Market Strategist at Geojit Financial Services, said," The downswing that we have been playing since approaching 20,200 last Friday appears to have reached a point which could either see a reversal or a substantial rise in downside momentum."
"We are inclined to play the former, aiming for 19,950 initially, but the inability to push beyond 19,760 or an outright fall below the 19,600-550 region could force us to pursue the latter, aiming 18600. The odds of such a collapse is low, but it is a possibility," he pointed out.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before making any investment decisions.
