Why are Sensex, Nifty falling today? Wall Street selloff, yield inversion & other factors

The BSE Sensex tested sub-59,000 level while the NSE barometer Nifty hit sub-17,350 level in a selloff that saw every two stocks on BSE falling on Friday, for every one that rose. The weakness on Dalal Street was much in line with the Wall Street selloff overnight, thanks to a collapse in banking index there and its jitters across Asia. The fact that yield curve in India inverted earlier this week and that the US Fed Chair Jerome Powell was quite hawkish in his commentary were other cause for concern.

By 11 am, domestic stocks had lost Rs 1.67 lakh crore in market capitalisation (m-cap). Investors globally were keenly awaiting non-farm payroll data in the US later today. Domestic investors were also awaiting CPI inflation data for February and industrial production print for January scheduled for later today.

Wall Street selloff

A 60 per cent drop in shares of SVB Financials, a bank that mainly funds start ups, hit US stocks overnight. US banking stocks took a beating on concerns that rising interest rates might trigger loan repayment defaults.

"This is a US-specific issue and will not have an impact on Indian banking stocks. But the sentiment impact can be negative. Today’s US jobs report will be crucial in influencing the Fed’s policy response and the market direction. If the jobs data show declining jobs growth, the US Fed will not be as aggressive as the market fears and equity markets will remain resilient," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Asia mirrors US losses

Investor sentiment were further dampened by weakness across Asian markets. The MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.6 per cent, with Japanese Nikkei plunging 1.20 per cent; Hong Kong's Hang Seng slumped 2.53 per cent, Australian ASX 200 shed 1.82 per cent, China's Shanghai declined 0.66 per cent while Korea’s Kospi dropped 1.12 per cent.

Yield inversion

When short term bond yield moves above long duration bond yields, it is known as yield inversion. 

An inversion of the yield curve is regarded as an indicator of imminent recession. India's one-year yield moved past 10-year benchmark yield earlier this week, raising concerns over system liquidity and slownig of the economy. The inversion happened, thanks to higher-than-expected cut offs on treasury bills sales, which in turn was triggered by deficit in the liquidity in the banking system. This declining trend in liquidity and inversion of the yield curve is likely to continue for some more time, analysts warned.

Rupee depreciation

After two straight months of outflows, FPIs are net buyers of domestic equities to the tune of Rs 13,993 crore in March. A weak rupee, however, is raising fears that the trend may not last long. The domestic currency depreciated 8 paise to 82.14 against the US dollar in early trade on Friday, weighed down foreign fund outflows and losses in domestic equities. At the interbank foreign exchange, the domestic unit opened weak at 82.12 against the dollar fell further to 82.14, registering a decline of 8 paise over its last close, PTI reported.

Technical weakness

The level of 17,500 followed by 200-SMA placed at 17,430 were seen as sacrosanct support for Nifty50 and that there were hopes that buying will re-emerge at lower levels. That said, Nifty breached those levels with ease on Friday morning.

"Since we are not seeing follow-up buying, traders need to avoid undue risk and need to be very fussy in their stock selection," said Sameet Chavan of Angel One.

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