Global Yields Are Rising. Where Does That Leave Indian Equities?

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Something in the global markets caught my attention, plus I’ve been getting quite a few recommendations on my YouTube feed around this. Bond yields are moving up pretty sharply across major economies…

The US 10-year is close to 5%, Japan’s 10-year has crossed 3%, and even India’s 10-year yield briefly moved above 7%.

At first, this looks like a bond-market story. But I feel there’s a bigger question for equity investors.

When bond yields go up, the opportunity cost of holding equities also goes up. If investors can get better returns from relatively safer fixed-income assets, expensive equities start looking a little less attractive, especially for foreign investors. That could mean more FII selling and pressure on valuations.

And it’s not just the US. If yields remain high across Japan, the US and Europe, investors could start asking for better returns from emerging markets too. That could put more pressure on the rupee and Indian bonds.

Then there’s oil. Higher oil prices can push up imported inflation and make things more expensive for India, while also giving the RBI less room to cut rates.

We’re already seeing quite a bit of disturbance in the market, so I’m wondering if global yields stay high, how much more pressure could this put on Indian equities?

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I think the concern is fair. Higher yields could put some pressure on valuations and FPI flows, especially if crude stays high. But if earnings hold up and domestic flows remain strong, Indian equities can probably absorb some of it.

The bigger worry is when all of these factors hit at the same time.

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That one doomer put buyer v. the rest of us when the polycrisis hits! :boomerang:

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