Stock market posts biggest one-day fall in 10 months!
Last updated: 26 Feb, 2021 | 11:59 am
The stock market posted its biggest single-day decline in at least 10 months, as various global and domestic factors weighed on investor sentiment. The Sensex closed 3.8% lower at 49,099 while the Nifty 50 index shed over 550 points down to end the session at 14,529. All the major indices ended the session lower.
Key factors behind the fall
Global bond yields spike: There has been a sharp rise in US 10-year bond yields, leading to a steep fall in US stocks yesterday. This has further triggered a global selloff on Friday. On Thursday, the US 10-year yield jumped to a one-year high of 1.614%. Bond Yields are on the rise due to fears of rising inflation in the United States.
This has triggered fears of foreign outflows from emerging markets, as equities become unattractive in relation to bonds. Due to rise in bond yields, the gap between Bond Yields and Earnings Yields has widened, making stocks less attractive.
Cues from Asian Markets: Asian stocks traded sharply lower on Friday following the fall in US equities. Technology-related stocks came under pressure following a steep rise in benchmark US Treasury yields.
Q3 GDP data: The markets turned cautious ahead of the release of Q3 GDP data. The economy had formally entered into a recession, with a contraction in GDP over the last two quarters. A Reuters poll estimates Q3 GDP growth at 0.5%.
Concerns around rising Commodity prices: Crude Oil prices have been on the rise in the month, on the back of supply disruption due to cold weather in Texas. According to a report by BoFA, the full impact of the rise in commodity prices is yet to play out in the Indian stock market.
Geopolitical concerns: The United States launched airstrikes in Syria on Thursday, targeting facilities near the Iraqi border used by Iranian-backed militia groups. The Pentagon has said the strikes were in retaliation for a rocket attack in Iraq earlier this month.
- Invest in equities in a staggered manner. Keep your SIP’s running. Stick to large caps and index stocks that are best suited to navigate the ongoing volatility
- Invest only high-quality AAA-rated bonds as they have the least risk.
- There is a significant tax advantage in holding a debt fund for more than 3 years.
- For a more than 3-year investment horizon, an investor should prefer short duration (duration < 3) fixed income instruments over a long duration. Stick to short duration funds and bonds, as yields are expected to remain volatile in the near future. Further, in the medium-term (2-3 years) the rate cycle is expected to bottom out and move up.
- Avoid lump sum allocation and adopt a more staggered approach over the next few months.