A steep hike in US treasury yields took the global markets by surprise on Friday as investors dumped equities for bonds. That apart, an air strike by the United States in Syria on Thursday, targeting facilities near the Iraqi border, further dented the trading sentiment.
US Treasury yields vaulted to their highest levels, of about 1.5 per cent, since the outbreak of the coronavirus pandemic on expectations of a strong economic expansion and related inflation. back home, the 10-year government bond firmed up to 6.23 per cent on Friday mirroring similar trends.
Additionally, geo-political tensions on the back of the US air strike in retaliation for a rocket attack in Iraq earlier this month cautioned investors.
Effectively, world stocks fell on Friday with MSCI’s Emerging Markets equity index posting its biggest daily drop in nearly 10 months and was 2.7 per cent lower. European shares, too, opened in the red, with the STOXX 600 down 0.7 per cent.
The MSCI world equity index, which tracks shares in 50 countries, was 0.9 per cent lower and was heading for its worst week in a month. Asia saw the heaviest selling, with MSCI’s broadest index of Asia-Pacific shares outside Japan sliding more than 3 per cent to a one-month low, its steepest one-day percentage loss since May 2020.
This, and caution ahead of the release of the gross domestic product (GDP) for the December quarter, made investors sit on the fence back home.
In the intra-day trade, the benchmark S&P BSE Sensex tumbled 2,149 points while the Nifty50 index slumped 629 points – their biggest one-day drop since May 2020. The indices ended near the lowest point of the day, at 49,100 and 14,529 levels, respectively, down 1,939 points and 568 points or 3.8 per cent each.
All the 30 constituents on the Sensex index and 50 stocks on the Nifty ended the day in the red. ONGC, JSW Steel, GAIL, M&M, Bajaj Finance, Grasim, and Hero MotoCorp were the top Nifty losers, down up to 8 per cent; Axis Bank, HDFC, Power Grid, ICICI Bank, and HDFC Bank were the top drags on the Sensex.
The Sensex and the Nifty indices posted weekly losses for the second straight week, down 3.5 per cent and 3 per cent, respectively, and have now erased 50 per cent of the gains clocked post Budget presentation.
In the broader markets, small-cap stocks held their ground relatively better as the S&P BSE SmallCap index settled only 0.7 per cent down. The S&P BSE MidCap index, on the the hand, ended 1.75 per cent lower. The broader markets gained half a per cent during the week.
On the sectoral front, banking counters got butchered as yield concerns soured sentiment in the sector. Expectations that banks may have to show yield-induced fall in G-sec value as losses, investors pushed the sell button for banks. The Nifty Bank, and Private bank indices closed 5 per cent down, followed by losses in the Nifty PSU Bank index, down 4.5 per cent.
The Nifty Metal and Auto indices dropped 3 per cent while the Nifty FMCG, IT, and Pharma indices slipped 2 per cent each.
Coming to key developments of the day:
An internal report issued by the RBI said on Friday that India’s medium-term inflation target of 4 per cent is appropriate for the country for the next five years under the central bank’s flexible inflation targeting mandate.
That apart, ahead of the Q3FY21 GDP announcement, government data showed that India’s fiscal deficit between April 2020-January 2021 jumped to Rs 12,34 trillion, as against Rs 9.85 trillion during the same period last year. For the month of January alone, the deficit stood at Rs 75,500 crore.