Wall Street Bond Jitters Hit Dalal Street Sentiment
The Indian stock market has been witnessing a tumultuous week, with the Sensex plummeting by 644 points and the Nifty losing a staggering 1.6% this week. The sudden sell-off in Indian equities can be attributed to the ripple effect of rising US treasury yields and Moody’s downgrade of America’s credit rating. The global market is reeling under the impact, and India is no exception.
The recent bond market jitters in the US have sent shockwaves across the globe, with investors scrambling to adjust their portfolios. The 10-year US treasury yield has been rising steadily, reaching its highest level in over three years. This has led to a significant increase in the attractiveness of US bonds, causing investors to flock towards them. As a result, the Indian rupee has weakened, and the Indian stock market has taken a beating.
The Indian private sector activity, however, continues to show robust growth, with the latest PMI (Purchasing Managers’ Index) data indicating a significant expansion in the manufacturing sector. The index recorded a whopping 57.2 points in July, up from 52.7 in June. This suggests that the Indian economy is still growing, despite the current market volatility.
So, what’s driving the sell-off in Indian equities? The answer lies in the global bond market dynamics. Rising US treasury yields have made US bonds more attractive to investors, leading to a significant increase in capital outflows from emerging markets like India. This is because US bonds offer a higher return, compared to Indian bonds, which have seen yields fall in recent times.
The Moody’s downgrade of America’s credit rating has also contributed to the market jitters. The rating agency downgraded the US credit rating from Aaa to Aa1, citing the country’s growing fiscal deficit and rising debt levels. This has led to a loss of confidence in the US economy, causing investors to reassess their portfolios.
The Indian market has been particularly affected, as it has traditionally been closely tied to global market movements. The Sensex has been range-bound for some time, and the recent sell-off has pushed it below its 50-day moving average. The Nifty has also breached its support level of 11,500, indicating a possible decline towards 11,000.
The Indian rupee has also weakened against the US dollar, losing around 1% this week. This has led to a rise in import costs, which could have a negative impact on the Indian economy. The weakening rupee has also made it more difficult for Indian companies to service their debt, which could lead to a credit crisis.
In the midst of this market volatility, the Indian government has announced a series of measures to boost the economy. These include a reduction in corporate tax rates, a hike in the foreign direct investment (FDI) limit in the insurance sector, and a relaxation of rules for foreign investors in the pension sector.
The Reserve Bank of India (RBI) has also taken steps to stabilize the market. The central bank has injected liquidity into the system, and has also cut the repo rate by 35 basis points to 5.4%. This has helped to reduce borrowing costs and increase consumer demand.
Despite these measures, the Indian market is likely to remain volatile in the short term. The rising US treasury yields and Moody’s downgrade of America’s credit rating are likely to continue to impact the market, leading to further sell-offs. However, in the long term, the Indian economy is expected to continue growing, driven by its robust private sector activity and structural reforms.
In conclusion, the recent sell-off in Indian equities is a result of the global bond market dynamics, driven by rising US treasury yields and Moody’s downgrade of America’s credit rating. While the Indian market is likely to remain volatile in the short term, the country’s robust private sector activity and structural reforms are expected to drive growth in the long term.
Source: https://www.thecore.in/podcasts/india-is-now-being-driven-by-wall-street-again-835766
