Indian bond yield soars as Sensex crashes over 3,500 points
What's the story
The benchmark 10-year bond yield in India witnessed a significant surge on Tuesday, reaching 7.0130% from its previous close of 6.9438%, marking the highest yield in nearly two weeks and the largest single-session climb since October 6.
Concurrently, the Indian rupee also saw a decline, dropping to 83.35 against the US dollar from its previous session's value of 83.14.
These market fluctuations are attributed to early voting trends in the Lok Sabha election results for 2024 not meeting market expectations.
Market impact
Election results impact on market and fiscal consolidation
The election results revealed that Prime Minister Narendra Modi's National Democratic Alliance (NDA) was leading, but with an unclear margin.
This unexpected scenario led to strong upward moves in yields, as stated by a trader with a state-run bank to Reuters.
Analysts suggest that if the BJP forms government with a weak mandate, it could affect the fiscal consolidation trajectory and potentially slow active foreign flows into India.
Policy impact
RBI's upcoming monetary policy decision and market predictions
The Reserve Bank of India (RBI) is set to announce its monetary policy decision on Friday.
Siddharth Kothari, an economist at Sunidhi Securities & Finance, predicts the benchmark bond yield to remain within a range of 6.95%-7.05% until this announcement.
This forecast comes amidst the ongoing market volatility due to election uncertainties and their potential impact on fiscal consolidation and foreign flows into India.
Market decline
Indian stock market indices experience significant drop
India's stock market indices, Sensex and Nifty 50, both experienced a significant drop of over 4% each on Tuesday, erasing all gains from the previous day.
At 11:45 am, Sensex was down by 3,521.03 points (4.6%) at 72,947.75, while Nifty was down by 1,120.55 points (4.81%) at 22,143.35.
V K Vijayakumar of Geojit Financial Services attributed this steep fall to the election results not aligning with exit polls predictions.