Indian shares crash as panic grips bond, global markets
Indian shares plunged nearly 4%, the sharpest drop in 10 months, on Friday amid a global stocks rout triggered by rising US government bond yields.
On Friday, the benchmark Sensex fell 1,939 points, or 3.78%, to 49,099.99, the biggest daily drop since 4 May 2020. The 50-share Nifty index declined 3.78% to 14,529, led by banks and financial services stocks. The impact on the broader market was less severe, with both Nifty Midcap and Nifty Smallcap falling by 1.6% and 1.2%, respectively.
Indian shares fell in line with Thursday’s rout in the US after Treasury yields rose to their highest level in a year. The spike in yields and the subsequent global stocks rout drew comparisons to the 2013 taper tantrum when the US Federal Reserve announced that it would reduce the pace of bond purchases as part of the unwinding of its quantitative easing programme.
Investors panicked at the prospects of accelerating inflation and faster economic growth triggering a reversal in the monetary policy stances of central banks.
Easy money policies across the world have sparked a global bull run in risky assets such as stocks in the last few years.
Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services Ltd, said investors would now closely track bond yields and inflation data for further market direction.
“We think the growth cycle is turning, and a rise in bond yields is consistent with rising share prices,’’ he added.
Rising bond yields are making them more attractive.
“The risks to equities are that bonds offer better value than equities at current levels,” analysts at Morgan Stanley said in a note on 23 February.
Adding to investors concerns, US President Joe Biden on Thursday night ordered airstrikes against the Iranian-backed militia in eastern Syria. A Reuters news report said that the airstrikes left at least 17 people dead.
“The bombing by the US in Syria and the rising bond yields have unnerved the equity markets globally. Generally, the equity market turns volatile in the initial phase of reversal in bond yields,” said Gaurav Dua, head of capital market strategy and investments, Sharekhan by BNP Paribas.
Dua said he expects the equity markets to stabilize despite the rising interest rate environment, given the upsides in bond yields are also driven by improving economic growth outlook. Dua said that central banks will likely step in to soothe nerves through timely intervention in the bond market to ensure an orderly movement in bond yields.
Faster economic growth and accelerating inflation were among the key reasons for the sharp rise in yields. US treasury yields eased to 1.538% overnight from a one-year high of 1.614% but were still 40 basis points higher in February in the biggest move since 2016.
In India, the 10-year government bond yields closed at 6.20% on Friday, rising 30 basis points this month. The rupee weakened 1.4% on Friday, the biggest drop since March, to 73.4650 a dollar.
The India volatility index, or VIX, jumped 22.93% to close at 28.14 on Friday, indicating further corrections in the markets. VIX, or the fear gauge, is a measure of investors perception of fear and anxiety.
Reuters contributed to the story.