5 reasons why Sensex and Nifty are falling; stock market outlook & more
The market has started pricing in a scenario wherein global financial conditions would tighten up further and oil prices may stay higher, probably touching $100 a barrel mark, in coming months.
- Oct 26, 2023,
- Updated Oct 26, 2023 4:32 PM IST
Stock market investors are a worried lot, as equity benchmarks Sensex and Nifty have fallen in nine of last 10 trading sessions. Since the market is always forward-looking, it has started pricing in a scenario wherein global financial conditions would tighten up further and oil prices may stay higher, probably touching $100 a barrel mark, in coming months due to ongoing geopolitical tensions. They are the two biggest concerns weighing on the sentiment at present.
The rise in dollar on upbeat US economic releases and resultant fall in rupee is the third big concern for the market. Tightening due to high 10-year US bond yields, which hit 5 per cent mark recently, also lowers attractiveness of emerging equity markets and, for India, like others, a depreciating currency can intensify foreign equity outflows. This is the concern number four for the market. Lastly, Thursday marked the expiry of monthly F&O series and Nifty has already fallen below a crucial support, which heighted volatility and supported a bearish bias.
At a low of 63,119.21, Sensex has now tumbled 3,308 points in six sessions. Nifty has fallen 962 points as it slipped below a support of 18,850, before recovering some ground.
US bond yields & tightening
Bond yields usually have inverse relationship with equity. This is because when yields rise sharply, they increase cost of capital. A rise in bond yields suggest companies may have to pay a higher interest cost on debt. Besides, they increase opportunity cost of investing in equities.
Rising bond yields and 'a higher for longer' interest rate scenario in the US has made emerging economies take note. Recently Indonesia's central bank ‘Bank Indonesia’ unexpectedly increased interest rate to defend Indonesian Rupiah despite low inflation.
"This has opened Pandora’s box for the rest of Asia on ‘who’s next?’," Nomura said in a note. A tightening cycle globally is not good for stocks.
Rising oil prices
Nomura in its base case sees 10-year US yields to rise to 5.5 per cent and expects dollar to appreciate by another 3-5 per cent. It sees geopolitical tensions to push up oil prices sustainably over the next six months to $100 barrel. India, however, is among the least likely to hike rates to defend their currencies, Nomura said.
VK Vijayakumar, of Geojit Financial Services said there is risk-off in global equity markets triggered by a combination of economics and geopolitics.
"The Israel-Hamas conflict continues to be a major headwind for markets. If the conflict lingers for long it has the potential to impact global growth too, when the global economy is already in the midst of a slowdown. In the near-term, however, the strongest headwind for the market is the stubbornly high US bond yields," said he said.
Rupee weakness, FPI outflows
Data available with NSDL showed FPIs have dumped Rs 9,935 crore worth equities in October so far. This was in addition to Rs 14,768 crore outflows in the previous month.
Vijayakumar said FPIs may be in the sell mode as the 10-year bond yield is now near 5 per cent .
"Sectors like banking and IT which constitute the largest segments of the AUM of FPIs are likely to be under pressure. This will provide opportunities for long-term investors to buy quality stocks, particularly in banking, at attractive rates," he said.
In the case of rupee, the local currency was trading 3 paise lower at 83.20 against the dollar in early trade today. There are, however, hopes that narrower trade deficit along with the RBI’s intervention in the forex) market may restrict depreciation.
Technical view
Sameet Chavan of Angel One noted that the bearish momentum is dominating, and the outlook for the monthly expiry suggests the likelihood of further weakness.
"Nevertheless, it's worth noting that the hourly charts indicate oversold conditions, and with prices nearing a psychological support level, one can avoid aggressive sell bets at lower levels. It would be prudent to utilise any rebounds to initiate short positions."
Also read: Adani Power, AEL, Adani Green: Adani Group shares crash 8% over auditor issue
Also read; HMA Agro shares jump 9% at open; board to meet to consider stock split
Stock market investors are a worried lot, as equity benchmarks Sensex and Nifty have fallen in nine of last 10 trading sessions. Since the market is always forward-looking, it has started pricing in a scenario wherein global financial conditions would tighten up further and oil prices may stay higher, probably touching $100 a barrel mark, in coming months due to ongoing geopolitical tensions. They are the two biggest concerns weighing on the sentiment at present.
The rise in dollar on upbeat US economic releases and resultant fall in rupee is the third big concern for the market. Tightening due to high 10-year US bond yields, which hit 5 per cent mark recently, also lowers attractiveness of emerging equity markets and, for India, like others, a depreciating currency can intensify foreign equity outflows. This is the concern number four for the market. Lastly, Thursday marked the expiry of monthly F&O series and Nifty has already fallen below a crucial support, which heighted volatility and supported a bearish bias.
At a low of 63,119.21, Sensex has now tumbled 3,308 points in six sessions. Nifty has fallen 962 points as it slipped below a support of 18,850, before recovering some ground.
US bond yields & tightening
Bond yields usually have inverse relationship with equity. This is because when yields rise sharply, they increase cost of capital. A rise in bond yields suggest companies may have to pay a higher interest cost on debt. Besides, they increase opportunity cost of investing in equities.
Rising bond yields and 'a higher for longer' interest rate scenario in the US has made emerging economies take note. Recently Indonesia's central bank ‘Bank Indonesia’ unexpectedly increased interest rate to defend Indonesian Rupiah despite low inflation.
"This has opened Pandora’s box for the rest of Asia on ‘who’s next?’," Nomura said in a note. A tightening cycle globally is not good for stocks.
Rising oil prices
Nomura in its base case sees 10-year US yields to rise to 5.5 per cent and expects dollar to appreciate by another 3-5 per cent. It sees geopolitical tensions to push up oil prices sustainably over the next six months to $100 barrel. India, however, is among the least likely to hike rates to defend their currencies, Nomura said.
VK Vijayakumar, of Geojit Financial Services said there is risk-off in global equity markets triggered by a combination of economics and geopolitics.
"The Israel-Hamas conflict continues to be a major headwind for markets. If the conflict lingers for long it has the potential to impact global growth too, when the global economy is already in the midst of a slowdown. In the near-term, however, the strongest headwind for the market is the stubbornly high US bond yields," said he said.
Rupee weakness, FPI outflows
Data available with NSDL showed FPIs have dumped Rs 9,935 crore worth equities in October so far. This was in addition to Rs 14,768 crore outflows in the previous month.
Vijayakumar said FPIs may be in the sell mode as the 10-year bond yield is now near 5 per cent .
"Sectors like banking and IT which constitute the largest segments of the AUM of FPIs are likely to be under pressure. This will provide opportunities for long-term investors to buy quality stocks, particularly in banking, at attractive rates," he said.
In the case of rupee, the local currency was trading 3 paise lower at 83.20 against the dollar in early trade today. There are, however, hopes that narrower trade deficit along with the RBI’s intervention in the forex) market may restrict depreciation.
Technical view
Sameet Chavan of Angel One noted that the bearish momentum is dominating, and the outlook for the monthly expiry suggests the likelihood of further weakness.
"Nevertheless, it's worth noting that the hourly charts indicate oversold conditions, and with prices nearing a psychological support level, one can avoid aggressive sell bets at lower levels. It would be prudent to utilise any rebounds to initiate short positions."
Also read: Adani Power, AEL, Adani Green: Adani Group shares crash 8% over auditor issue
Also read; HMA Agro shares jump 9% at open; board to meet to consider stock split