The Indian indices traded negative on Tuesday, following Asian peers as sentiment remained shaky after US Treasury yields sank to their lowest since late 2017, adding to fears of a recession. However, analysts feel the pressure on Indian markets would subside in the near-term as domestic macro-economic sentiment remained strong ahead of general elections.
10-year US Treasury yield has fallen about 18 basis points since the Federal Reserve last week ditched projections for raising rates this year and announced the end of its balance sheet reduction, citing signs of an economic slowdown. On Friday, the 10-year yield slipped 10 basis points (bps) to 2.44 percent, below the yield for three-month bills for the first time since 2007, inverting the yield curve.
The Indian market reacted negatively to the news of heightened risk of a global slowdown with frontline indices Nifty and Sensex falling nearly 1 percent each on Monday.
According to Jagannadham Thunuguntla, senior VP and Head of Research (Wealth) at Centrum Broking, Indian market was already due for a correction after a breath-taking rally of past 20 days and the inversion of the bond yield curve has provided the trigger for the same.
Jayant Manglik, President - Retail Distribution at Religare Broking, feels the pressure would subside on the local front, at least in the short run, due to scheduled derivatives expiry and upcoming general elections.
The inversion of the US bond yield curve (between 3 months and 10 year) has led to concerns of the possibility of US economic recession, as historically inversion of the yield curve has always preceded the impending recession. Further, the macro-economic readings such as PMI from Germany and France have also not helped as some of them came at multi-year lows. Hence, the markets are worried that global slowdown is a high probability scenario now.
"US bond yield has fallen as risk appetite of investors to equities reduced due to fear of US recession. Consolidation may extend in the near term, however, domestic macro-economic sentiment remains strong. Stability in oil prices and an increase in FIIs inflow in expectation of earnings revival and formation of stable government reflects the strength of the market," said Vinod Nair, Head of Research at Geojit Financial Services
Thunuguntla believes that the central bankers' reaction to this imminent global slowdown (in terms of easy monetary policy, etc), upcoming corporate results season and political dynamics will hold the key in near-term.
Going forward, Manglik said that the investors should continue with the stock-specific trading approach and suggested maintaining positions on both sides.
First Published: Mar 26, 2019 12:48 PM IST
