Rising US bond yields, oil price trim September stock market gains

After surging 5%, the Sensex ends the month only 2.7% up

Rising US bond yields and surging Brent crude price ate into the gains made by the markets during September. After rising as much as 5 per cent, the Sensex ended the month with just 2.7 per cent gain. On Thursday, the index fell for the third straight day due to sustained withdrawals by overseas investors amid a 25 basis points spike in the US bond yields in just five trading sessions.

The 30-share index last closed at 59,126, while the Nifty50 fell 17,618. The Sensex is down 1,286 points from Monday’s intraday high of 60,412. According to experts, global headwinds would have pulled down the index even more if not for the buying support from retail and domestic investors.  FPIs on Thursday sold shares worth Rs 2,226 crore, extending their three-day selloff to nearly Rs 5,500 crore. 

“The Nifty has fallen for three consecutive sessions — the longest streak in almost two months. While the Nifty has not fallen with deep cuts and recoveries have been witnessed after intraday sell-offs, the fact that it closed lower for three straight sessions is a bit unnerving,” said Deepak Jasani, head of retail research, HDFC Securities.

Analysts said concerns — such as the increase in US bond yields, impact of the spike in oil prices on India’s macros, and China crisis — are weighing on investors' minds. In the international market, Brent crude for November delivery was trading at $78.03 a barrel (8.11 pm IST) on its expiry day — up around 8 per cent in September. A few days ago, it was trading near $80-mark. 

Investors, according to analysts, are reconsidering their asset allocation strategies after the sharp up-move since August. Any further increase in global, as well as domestic yields, may further turn the risk-reward unfavourable for the equity market.

Meanwhile, a deal to avoid a government shutdown in the US and central bank assurances about the transitory nature of inflation have prevented investor mood from turning extremely sour. The comments from central bankers in the US and Europe have reassured investors amid worries over the rise in bond yields.

The factory output in China contracted for the first time in 18 months in September. The country’s PMI, a gauge of factory activity, was 49.6 in September. The 50-point threshold separates monthly contraction from expansion. Analysts said the fall in PMI signals weakness in the Chinese economy, as the country grapples with power shortages and the outbreak of the Delta variant. Goldman Sachs has cut its economic forecast for China, citing pressures from energy shortages. 

Some investors, however, have been betting on equities hoping for a surge due to post-pandemic growth.

“The markets are likely to continue with its consolidation given the sharp run-up over the past few weeks and weak global cues. But domestic cues remain positive as Covid cases decline, resulting in more relaxations in economic activities,” said Siddhartha Khemka, head of retail research Motilal Oswal. “Investors can tap this opportunity to adopt a buy-on-dip strategy as the long-term fundamentals remain intact.”