Fear of rising inflation, stir in the market

Sunder Sethuraman / Mumbai March 01, 2021

The sudden rise in bond yields in the US can be seen in the stock market this week. Last week, the 10-year US bond yield climbed to 1.61 per cent, leading to strong selling in markets across the world. On Friday, the Sensex and the Nifty also fell about 4 per cent.

Although investors may get some relief from this, the yield of the US bond has come down to 1.41 per cent, but it is still higher than the 1.08 per cent level of a month. The US Parliament may approve a $ 1.9 trillion stimulus package that could boost investor morale. The Dow Jones closed down 1.5 percent on Friday, but the Nasdaq closed 0.56 percent higher than the low.

Experts say that according to the estimate of inflation, the market move can be decided. Policy makers are not considering inflation as a big risk, but the bond market moves last week indicate an increase in inflation. However, it remains to be seen whether inflation rises temporarily or persists for a longer period due to stimulus expenditure, forcing central banks to raise rates. UR Bhatt, director of Dolton Capital India, said, “Investors in the bond market are waiting to get out of the market as soon as there is a slight indication of an increase in interest rates.”

UR Bhatt said that if interest rates rise a little, then investment from the stock market can go into the bond market. We expect the Federal Reserve and other central banks to make cautious statements to allay investors’ nervousness. If they are successful in addressing investors’ concerns over interest rates, then the market may stabilize.

On Friday, foreign portfolio investors sold Rs 8,300 crore in the Indian market, causing the rupee to fall to a one-day high of Rs 1.04 in nearly 19 months. The rupee had closed at 73.47 against the dollar. Experts say that if foreign investors continue to sell in the domestic market, the rupee may weaken further and the market may fall further. Gone. Earlier, the index reached this level in July 2020 amid the uncertainty of Covid. The benchmark index has nearly doubled during the epidemic from its March 2020 low. Experts say that a spike in bond yields could reduce the attractiveness of the stock market.

Andrew Holland, CEO of Avendus Capital Alternate Strategies, said, “If employment picks up and people increase spending, inflation will also increase. Due to this, interest rates may also have to be increased. In such a situation, if the investor gets the same return in the bond, then they will withdraw from the equity. The Sensex is currently at 49,100 and the Nifty at 14,529. However, the Sensex and the Nifty are still trading at 20 times their FY2023 earnings estimates. This is more than 16 times the 10-year average. Experts say that if the situation continues to be challenging, the valuation may be lower.

Add a Comment

Your email address will not be published. Required fields are marked *