Indian stock market investors are on their toes, as equity benchmarks Sensex and Nifty have seen a significant fall in the past few weeks. In the past 1 month, Sensex has fallen by ~2.5% while Nifty hovers around ~19,079.60 levels. Indian stock market is being impacted by several factors, and investors are always on the hunt for the asset classes which are safer. Since equity market is always forward-looking, it started pricing in a situation in which global financial conditions might tighten up further and oil prices might increase further. All these factors are being triggered by geopolitical worries. Tightening as a result of higher 10-year US bond yields, which touched ~5% mark, might lower attractiveness of emerging equity markets and, for India, a depreciating currency might intensify foreign equity outflows.
Factors affecting Indian Stock Market
Since Indian stock market is being impacted by several factors, let us quickly analyse some of them.
- Experienced investors and traders know that bond yields are negatively co-related with equity. This is because when yields increase, they increase cost of capital. Higher bond yields mean that companies might have to pay higher interest on debt. Apart from this, they increase opportunity cost of make investments in equities. Higher bond yields and ‘a higher for longer’ interest rate scenario in United States impacted the markets of emerging economies.
- Nomura, a global financial and investment firm, expects 10-year US yields to increase to more than ~5% and it expects dollar to appreciate by another ~3%-5%. The financial firm expects geopolitical tensions might increase oil prices significantly in upcoming 6 months to $100 barrel. India, however, is will not be in a position to hike rates to defend their currencies. Israel-Hamas conflict will continue to be a major headwind for stock markets. If this conflict lingers for long, it can significantly impact the growth opportunities of emerging markets.
- Since Indian stock market is being impacted by several factors, selling by FPIs has a significant and immediate impact on domestic bourses. Data released by NSDL exhibited that FPIs have dumped INR 9,935 crore worth equities up until 26th October. This significant number adds to INR 14,768 crore outflows which Indian markets saw in September 2023. Such huge selling by the FPIs was because of 10-year bond yield hovering at ~5%. Sectors such as banking and IT, that make up largest segments of the AUM of FPIs, is expected to be under pressure. On the positive note, this selling might provide opportunities for long-term investors to purchase quality stocks at cheap prices.
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