Sensex ahead of Dow Jones by a wide margin amid rising bond yields

The US benchmark Dow Jones slipped below its pre-pandemic high on Monday as investors continue to dump equities due to rising bond yields, but the Sensex is still 36 per cent higher than its January 2020 high.

The US equity benchmark closed at 29,260.81 on Monday — nearly 1 per cent down from its pre-pandemic closing high of 29,551.52 made on February 12, 2020.  With this, the Dow is now down 20.5 per cent from its post-pandemic high of 36,799.65 made in January this year. This potentially pushes the US equity market into bearish territory.

In the equity market, a sustained 20 per cent decline in benchmark indices from their highs is an indication of the end of a bull market and the start of a bear cycle.

The Indian equity market is, however, a global outlier and remains firmly in the bull phase — both in local currency and in constant currency terms.

The benchmark S&P BSE Sensex is still up nearly 36.2 per cent from its pre-pandemic closing high, notwithstanding the recent decline. Besides, the Indian equity market is still nearly 11 per cent higher than its June low unlike other major global equity markets that not only broke their pre-Covid high, but are also below the June lows.

The benchmark Sensex closed at 57,107.52 on Tuesday — up 36.1 per cent from its pre-pandemic high of 41,952.63 made on January 14, 2020. The Sensex also continues to outperform its global peers in constant currency terms regardless of a sharp depreciation in the rupee against the greenback in the current fiscal year (2022-23).

The Sensex is up 22.1 per cent in US dollar terms from its pre-pandemic high of $578 made at the end of December 2019. The Sensex closed $700 on Tuesday.  

This has widened the performance gap between the Indian and global markets.

Analysts, however, fear collateral damage to the Indian equity market if the sell-off in the global market gets longer — and deeper.
 

“The Indian equity market has been a global outlier since its June lows and remains relatively firm in spite of global sell-off. However, if the sell-off in the global market sustains, we will see further decline in stock prices in India," says Shailendra Kumar, chief investment officer, Narnolia Securities. 

The global sell-off, however, has begun to have a rub-off effect on some segments of the Indian equity market. After the recent correction, nearly a fifth of the BSE 500 index stocks are now trading at a share price below January 2020 levels. The decline has so far been restricted to mid- and small-cap stocks in sectors like banking, finance, insurance, construction and infrastructure, and oil and gas.

RBL Bank, for instance, is down 65 per cent from its January 2020 levels. Other big underperformers include Indiabulls Housing (down 61 per cent), YES Bank (down 61 per cent), General Insurance Corporation of India (down 52.5 per cent), and Dilip Buildcon (down 47 per cent).

Most large-cap stocks and industry leaders, however, remain firmly higher than their pre-pandemic highs.

Other analysts attribute a bigger sell-off in the global market to a sharper rise in bond yields in developed markets and fears of a recession in major economies in North America and Europe.

“The recession fears in the US and European countries, the Russia-Ukraine stand-off, and the political uncertainty in China have further cast a cloud of uncertainty over the global economy. These led to the US 10-year bond yields rising to 3.82 per cent — the highest since 2010,” says Sandeep Bhardwaj, chief executive officer, IIFL Securities.

A global recession will adversely affect India’s exports, but brokerages expect their impact to be limited for corporate earrings. This, they say, explains the outperformance on Dalal Street.