Adrian Mowat 'nervous' about Bank Nifty, expects Fed pause on rates amid robust data

Mowat is 'nervous' about the Nifty Bank Index in India as 'the index currently exhibits technical weakness' even as the Indian market displays notable strength. Negative earnings revisions by banks have also added a layer of concern from a fundamental perspective.

"Until July, India's market was in sync with the performance of the US market. However, things took a turn with the sharp increase in US bond yields and the strengthening of the US dollar since July. Consequently, the Indian market has experienced a correction that mirrors major global markets, particularly those in the United States," he noted.

Last month, Laurence Balanco, Technical Analyst at CLSA, also pointed out that the weakness in the bank index had the potential to drag the market lower.  "The recent price action exhibits signs of relative and absolute vulnerability," he said in a conversation with CNBC-TV18 on Monday (October 23).

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Mowat will closely watch the US bond market to see if they break above 5%. "If we get that comfort over the next month or so, then I think you will start to add to risk assets and that would include the Indian market, but for now I would be cautious,” Mowat said.

US 10-year treasury yields have been flirting with the 5% mark, a 16-year high, over the last few days. When bond yields rise sufficiently to surpass returns from stocks, the opportunity cost of investing in stocks escalates, making them less attractive. Consequently, fund flows may shift from equities to debt markets. Given the safe-haven status of US treasuries, investors tend to favour them.

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