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    D-Street players keep a wary eye on US bond yield, RBI policy to also weigh

    Synopsis

    The four-day losing run till Friday resulted in the benchmark indices snapping five weeks of gains and logging the worst weekly performance since April. On Friday, the Nifty ended at 17,532.05 and Sensex closed at 58,765.58, declining nearly 2% from their highs.

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    Technical and derivative analysts are still hopeful that the Nifty will touch 18,000 in October.
    Mumbai: The direction of US bonds may continue to drive sentiment in the stock market, which has been under pressure of late following the recent rise in yields. With the Nifty near the crucial support of 17,400, sentiment among traders is jittery as a lot of bullish bets are likely to be taken off if the index declines below this level. Analysts said expectations of Reserve Bank of India signalling the start of normalisation of its liquidity measures in the policy meeting on October 8 will also keep traders nervous.

    The four-day losing run till Friday resulted in the benchmark indices snapping five weeks of gains and logging the worst weekly performance since April. On Friday, the Nifty ended at 17,532.05 and Sensex closed at 58,765.58, declining nearly 2% from their highs.

    The weakness last week was triggered by the rise in US bond yields as growing inflationary concerns have raised expectations that the US Federal Reserve could resort to faster withdrawals of its asset purchase programme.
    d-st

    "Investors need to watch out for rising US yields which can cause a correction but it is not going to be a one way street. We need to watch out for the sustainability of the rise in yields," said Piyush Garg, chief investment officer, ICICI Securities. "At higher levels the risk is rising in the market and the correction will also be larger at higher levels. We could underperform the global markets from here," said Garg.

    The Indian equity market underperformed most regional markets last week except Korea, Taiwan and Japan. In September, stock indices gained nearly 3% and outperformed all regional markets except Japan. In the September quarter, Indian markets outpaced most global markets with a gain of 12%.

    "US interest rate movement is something which the market will watch carefully and if the rise is sharp and sudden then there will be further correction," said Nilesh Shah, managing director, Kotak Mutual Fund.

    Fall in active Covid-19 cases, increase in the pace of vaccinations and easy money policies of global central banks have helped the bullish momentum in Indian markets for over 18 months. The run-up has led to valuations turning rich, said analysts. At 22.1 times, Nifty's 12-month forward price-to-earnings ratio is 42%, above its 16-year average.

    Investors will also look out for signals from RBI this week whether it plans to tighten its policy. Barclays said the RBI "may signal that the December MPC will be a 'live' meeting."

    "We believe the RBI will take more steps towards normalising policy," said Barclays.

    Kotak's Shah said RBI's normalisation of monetary policy will be multi step. "First, it will reduce repo and reverse repo rate corridor. Second, RBI will change monetary stance from accommodative and then raise repo rate. Whether it will happen from next monetary policy is difficult to guess," he said.

    Technical and derivative analysts are still hopeful that the Nifty will touch 18,000 in October. "We remain bullish for targets of 18,250 and 18,600 in October as long as 17,400 is sustained," said Rahul Sharma, head-technical and derivatives research at JM Financial Services.




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    (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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