Wednesday was another day of fall for benchmark stock indices Sensex and Nifty as US 10-year bond yields spiked and dollar hit four-month high against a basket of major currencies, ahead of US CPI inflation data later in the day. The relentless FPI selling and all-time low rupee (84.40 today) have made investors jittery. Investors are worried about the dollar’s strength amid expectations that the robust US economic growth and aggressive trade policies under a Trump presidency will drive inflation higher.
This concern has also dialled back hopes of Fed rate cuts. Data showed three out of every four active stocks that traded on BSE were trading in the red.
Nomura India said Donald Trump’s election victory and an almost certain Red sweep significantly changed its macro outlook.
"We now see a rebound of US inflation in 2025, fueled by broad-based tariffs which we expect the US to impose in H1 2025. Thus, we now expect the Fed to cut once more in 2024 and only once in 2025 to a still-restrictive 4.125 per cent," it said.
At 10.30 am, the BSE Sensex was trading at 78,295.70, down 379.48 points, or 0.48 per cent. Smallcap and midcap indices fell 1.77 per cent and 1.41 per cent, respectively.
Nifty stood at 23,757.30, down 126.15 points or 0.53 per cent. Mahindra & Mahindra Ltd (M&M) fell 3.12 per cent to Rs 2,805. Tata Steel declined 2.01 per cent to Rs 141.25. JSW Steel, Maruti Suzuki India, Nestle India, TCS, Sun Pharma, Reliance Industries and TechM fell over 1 per cent each.
"From the emerging market perspective, the rise in the dollar index and the sharp spike in the US 10-year bond yield to 4.42 per cent are causes of concern. Such high yields in US bonds will facilitate more outflows from emerging markets to the US. This will continue to be a headwind for India," said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Vijayakumar said investors should be cautious in investing in sectors like cement, metals and petroleum refining which are facing growth slowdown.
"Safety is sectors like banking, new age digital companies, hotels, pharma and IT where growth prospects are good," Vijayakumar said.