Markets Collapse More Than 2% Over Covid Concerns; rising bond yields sparks fear

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Mumbai: Markets fell more than 2% on Monday amid new concerns over the rising number of covid cases, raising fears of a deeper impact on the economy. Added to these uncertainties is the fear of rising global inflationary risks as crude oil prices rise sharply. The selloff in equities around the world also follows a sudden surge in 10-year bond yields across the world.

Falling about 5% from their all-time highs, the benchmarks experienced the largest single-day decline in two months. BSE Sensex slipped 1,145.44 points or 2.25% to close at 49,744.32. The Nifty lost 306.05 points or 2.04% before closing at 14,675.70.

Maharashtra Chief Minister Uddhav Thackeray warned on Sunday that the lockdown would have to be re-imposed if daily cases of covid continued to rise over the next two weeks, calling the situation in the state “serious.” After a three-month lull, Maharashtra has seen a steady increase in covidus cases in recent days.

“The rise in economic restrictions resulting from the surge in virus cases and weak global signals has affected domestic market sentiment. The market’s rate of decline was compounded by a sharp rise in volatility, being a week d ‘monthly expiration of futures and options (F&O), which led the rally, slowed due to global vulnerabilities from rising bond yields and inflation, ”said Vinod Nair, head of the rally. research at Geojit Financial Services.

The Indian Volatility Index or VIX jumped the most in two months, ending 14.5% higher at 25.47 on Monday. The rise in the VIX indicates that investors are increasingly anxious and worried, which may lead to further corrections in the stock markets.

According to Sonal Varma and Aurodeep Nandi, economists, Nomura, the recent resurgence of covid-19 cases across more virulent strains, especially in Maharashtra, poses a short-term risk to normalization of growth in the coming weeks. . “However, the resurgence of covid-19 remains relatively localized and the second waves in other countries have proven to be less disruptive economically. Faster global growth,” they said.

Meanwhile, the Indian rupee strengthened on Monday to close at a one-year high against the US dollar which tracks domestic stocks. The national currency closed at 72.50 against the US dollar, up 0.21% from its previous close of 72.65.

India’s bond yields have risen, alongside global trends, and there are fears of hurting hot equity markets, which have rallied more than 100% from the lows in March of last year. The yield on the 10-year India GSec rose to 6.20% on Monday.

“We believe that one of the recent surges in yield could be short selling by market participants,” said Soumya Kanti Ghosh, group chief economic adviser, State Bank of India.

Ghosh said that if the significant increase in bond spreads is a manifestation of nervousness among market participants, the central bank will have to resort to unconventional tools to control surging bond yields.

“This is important because any further upward movement in G-Sec yields, even 10 basis points from the current level, could result in mark-to-market losses for banks, which could be a small blow of a year rather on the exceptional rise on the bond markets of FY21. with the Reserve Bank of India assiduously supporting the management of government debt at the lowest possible cost in 16 years, which otherwise could have threatened financial stability, ”he added.

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