Sensex suffers its worst single-day fall in 10 months, crashes 3.8%

India’s benchmark stock indices on Friday saw their worst single-day rout in nearly 10 months as the rising US bond yields took the wind out of the sails of equity markets globally.

The 10-year US Treasury yield rose to as much as 1.61 per cent on Thursday, as against 1.08 per cent at the start of the month, stoking fears that the days of loose monetary policy, which underpinned the stock market rebound from the last year’s lows, could be numbered. Not just in the US, government bond yields have surged in most countries on expectations of rising inflation in the post-pandemic period, even as policymakers suggest that it will be a long road to recovery.

The Sensex fell 1,939 points, or 3.80 per cent, to end at 49,100 -- its biggest loss since May 4 last year -- while the Nifty closed at 14,529, down 568 points, or 3.76 per cent. The fall in the Indian indices was the most among global markets after Japan’s Nikkei 225, which dropped 4 per cent.

Investors lost a whopping Rs 5.3 trillion on Friday, with the total market capitalisation of BSE-listed companies standing at Rs 200.81 trillion. Foreign portfolio investors sold shares worth nearly Rs 8,300 crore, while domestic institutions provided buying support of Rs 1,500 crore.

The Indian markets had outperformed global peers on the way up in February and are falling more than others on the way down, said experts. The Sensex rose as much as 13 per cent this month. Last week, it climbed to a new all-time high of 52,154. The index is now down 6 per cent from its peak, but still ended February with a 6 per cent gain.

Analysts said the markets could correct further if bond yields continue to rise, as the risk-reward would no longer tilt in favour of risky assets.

However, some said that the bond market sell-off in the US on Thursday was due to technical factors and the yields had already cooled off below 1.5 per cent.

“The reaction is largely psychological, as neither the Federal Reserve nor the RBI has given any indication of higher inflation or lower money supply. Both the central banks have given indications to the contrary. What's happening is certain investors globally are raising the spectre of higher inflation and higher bond yields and using the same to spook markets," said Saurabh Mukherjea, Founder Marcellus Investments.

Jyotivardhan Jaipuria, founder, Valentis Advisors, said the markets were overheated, and looking for a reason to correct. "The markets did very well in February and it needed an excuse to correct. We are probably headed to a phase where we get a price and time correction. And as long as the growth uptick continues and we manage to vaccinate, it will be a pretty good year for markets. Bond yields were at historic lows, and it is expected to go up anyway. Fed and other central banks are not in a hurry to raise rates. As long as it goes up slowly, its impact will be bearable. Moreover, rising yields also signify that growth is picking up, and as long as both growth and yield go up simultaneously, there is no reason to worry," he said.

News reports of United States launching airstrikes in Syria on Thursday, targeting facilities near the Iraqi border, also weighed on global investor sentiment. Also, domestic investors were cautious ahead of the release of key economic data, said market players.

All 30 Sensex components ended with losses. ONGC fell the most, by 6.6 per cent, followed by Mahindra & Mahindra and Axis Bank, which dropped 6.35 per cent and 5.98 per cent, respectively. All the sub-indices of the BSE also ended with losses. The banking sector gauge fell the most at 4.9.

The India VIX rose 23 per cent and ended Friday's session at 28.14. Experts said the sharp rise in the index indicates that traders expect more turbulence next week.