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US Bond yields largely behind the hiccup in the Indian market rally

The recent fall in the stock market is largely due to rising US bond yields. The fundamentals of Indian equity remain the same. Expect short term hiccups but it’s the long term you should keep your eye on.

What’s the news?

Rising US Government bond yields are having an impact on Indian stock market performance

What does that mean?

Indian stock market Indices saw a fall over the past few days with the BSE Sensex ending below the 50,000 mark on 22nd Feb. 

While multiple reasons are behind the weakness in the market, the one being talked about the most is the rising yield of the US Government Bond. The yield on the 10-year bond moved up from the recent low of 1.01 % to 1.36 % this week. 

Bond yields play a big role in how Foreign Portfolio Investors (FPI) invest. Historically, it has been seen that when bond yields rise in the US, FPIs move out of Indian equities. A higher return on treasury bonds in the US leads investors to move their asset allocation from more risky emerging market equities or debt to US Treasury which is perceived to be a safer investment instrument.

In addition to the reason above, other factors that are on the top of investors mind include fears of a second wave of covid-19 infections; a likely surge in inflation and higher crude prices.

While these factors play a role in the short term, the long term investor should not be impacted. The long term prospects of an asset is a function of the underlying value that the investment will generate over time. We continue to believe that Corporate India holds much promise over the long run.

How does this affect your wealth?

Short term movements may show variations in portfolio values, Investors need to remember that the inherent attractiveness of the asset class does not change on a day to day basis. While in the short term, markets are voting machines, in the long run – they are weighing machines.

 

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