Bonds and Commodities are increasingly on the stock markets!

The sharp rise in bond yields and rise in commodity prices is troubling the equity market. In such a situation, most analysts predict that the growth of equity markets will be limited from here.

Asian stocks traded significantly lower on Friday as Wall Street’s main indices broke and tech sector stocks were under pressure due to a sharp rise in benchmark US Treasury yields, which rose to the highest level since the start of the epidemic. . The return was up 14 basis points to 1.5286 per cent. This increase came against the backdrop of strong economic expansion and related inflation.

Mahesh Nandurkar, managing director, Jefferies, said, “The Indian yields have certainly dropped to a lower level as per the global trend.” After the Budget was presented in February, India’s 10-year bond yields rose by 28 basis points to 6.18 per cent, while the RBI supported the market. Our 6.5 percent target by the end of December 2021 can be achieved soon. Income yields (one-year forward PE of the Nifty) and 10-year bond yields are now 156 basis points, higher than the long-term average of 57 basis points.

Indian markets have been on the upswing since the March 2020 lows. The main indices S&P BSE Sensex and Nifty-50 have risen by 92 per cent and 94 per cent respectively till February 25. The increase in midcap and smallcap has been even higher and both indices have registered a growth of 106 per cent and 128 per cent respectively during this period.

On the other hand, rising commodity prices pose a challenge. Brent crude prices have risen by about 250 per cent from the April 2020 low to $ 66.59 a barrel. Copper prices are at a 10-year high, while other base metals have risen as the US Federal Reserve has confirmed a softening in monetary policy to support the growth of the world’s largest economy.

According to a recent report by BofA Securities, 31 companies of Nifty are in the grip of commodity risk and have said that the full impact of the rise in commodity prices is yet to be seen. Against this backdrop, analysts feel that the market growth will be limited and they see a possibility of indices getting into the integration phase.

“Historical analysis suggests that the Nifty may still see an uptrend, but the benchmark of return valuation suggests that the market will grow by just one point,” Nandurkar said.

A similar opinion is held by analysts at Credit Suisse Wealth Management. Although the long-term fundamentals remain and they keep a sharp eye on the cyclical sectors, they also anticipate that the market will be unified after the sharp boom after March.