Rising US bond yields, falling oil prices, September stock market gains

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The rise in US bond yields and the surge in the price of Brent crude eroded the gains made by the markets in September. After rising 5%, the Sensex ended the month with a gain of just 2.7%. On Thursday, the index fell for the third day in a row amid sustained withdrawals by foreign investors as part of a 25 basis point rise in U.S. bond yields in just five trading sessions.

The 30-stock index last closed at 59,126, while the Nifty50 fell 17,618. The Sensex is down 1,286 points from Monday’s intraday high of 60,412. Global headwinds would have pushed the index down even further, experts say without the buying support from retail and domestic investors. REITs sold shares worth Rs 2,226 crore on Thursday, extending their three-day sale to nearly Rs 5,500 crore.

“The Nifty fell for three straight sessions – the longest streak in almost two months. While the Nifty hasn’t fallen with deep cuts and rallies have been seen after massive intraday selling, the fact that it closed lower for three consecutive sessions is a bit disconcerting, ”said Deepak Jasani, Head of Retail Research, HDFC Securities.

Analysts said worries – such as rising U.S. bond yields, the impact of soaring oil prices on India’s macros and the Chinese crisis – were weighing on investors’ minds. In the international market, Brent crude for November delivery was trading at $ 78.03 per barrel (8:11 p.m. HIST) on the day it expired, up about 8% in September. A few days ago, it was trading close to $ 80.

Investors, analysts say, are reconsidering their asset allocation strategies after the sharp rise since August. Any further increase in global and domestic returns could further make the risk / reward ratio unfavorable for the equity market.

Meanwhile, a deal to avoid a government shutdown in the United States and central bank assurances about the transitory nature of inflation kept investor moods from turning extremely bad. Comments from central bankers in the US and Europe reassured investors amid concerns over rising bond yields.

Production at factories in China contracted for the first time in 18 months in September. The country’s PMI index, an indicator of factory activity, was 49.6 in September. The 50 point threshold separates the monthly contraction from the expansion. Analysts said the fall in PMI signaled weakness in China’s economy, as the country grapples with power shortages and the emergence of the Delta variant. Goldman Sachs lowered its economic forecast for China, citing pressures from energy shortages.

Some investors, however, have bet on stocks in hopes of a rise due to post-pandemic growth.

“Markets should continue to consolidate given the strong acceleration in recent weeks and weak global signals. But national signals remain positive as Covid cases decline, leading to more easing in economic activities, ”said Siddhartha Khemka, head of retail research Motilal Oswal. “Investors can take this opportunity to adopt a bearish buying strategy, as long-term fundamentals remain intact.”

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