A combination of high equity valuations in India and a steady ascent in bond yields in the United States has pushed the spread between the BSE Sensex earnings yield and the US 10-year bond yield to its narrowest since 2000. Moreover, the spread has languished in negative territory for three consecutive months.
Historically, a protracted period of negative yield spread has followed major corrections in the equity market, such as the dotcom crash of 2000. Similarly, the yield spread was submerged in negative territory in the months preceding the January 2008 market correction. In contrast, the spread luxuriated in positive