Which Is the Bigger Threat to Markets? Crude Oil or US 10 Year Yields
Indian stock markets are witnessing heavy selling pressure today, with the Sensex falling more than 700 points and the Nifty slipping below 23,250. The decline is mainly due to rising crude oil prices, higher US Treasury yields, geopolitical tensions and continued concerns over foreign investor selling. Brent crude has moved above $108 a barrel as tensions in the Middle East have increased. This is a major concern for India because the country imports a large part of its crude oil requirement. When oil becomes expensive, India has to spend more dollars on imports, which can put pressure on the rupee and increase inflation. Higher fuel and transportation costs can also increase expenses for companies and consumers.
Another major concern is the rise in the US 10 year Treasury yield, which is now approaching 5%. In simple terms, US Treasury bonds are considered one of the safest investments in the world. When investors can earn a higher return by investing in US government bonds, they may reduce their exposure to riskier assets such as emerging market stocks, including Indian equities. Higher US bond yields can therefore lead to foreign money moving away from markets like India. It can also strengthen the US dollar, putting additional pressure on the rupee.
Between crude oil and US Treasury yields, crude oil is currently the bigger immediate risk for India, while the US 10 year yield is the bigger global market risk. The reason crude is more important for India is simple. If oil prices remain high, India's import bill rises, the rupee can weaken and inflation can increase. This can make it harder for the Reserve Bank of India to reduce interest rates. Higher costs can also hurt the profits of several companies. US Treasury yields work differently. They mainly affect the market through interest rates, the dollar, global liquidity and foreign investment flows.
The biggest concern for investors would be if both risks continue at the same time. Think of crude oil as the spark and US Treasury yields as the amplifier. Higher crude oil can increase inflation, which can keep interest rates higher for longer. At the same time, higher US yields can attract global money towards US bonds and away from equities. This combination can create pressure on the rupee, foreign investment and stock market valuations.
FII Selling Adds to Market Pressure
Foreign Institutional Investors turned sellers on September 10, offloading around ₹438 crore from Indian equities, while DIIs bought nearly ₹1,026 crore, providing some support. Rising crude oil, higher US 10-year yields, a stronger dollar and geopolitical tensions are making foreign investors more cautious. If these pressures persist, continued FII selling could add further pressure on Indian markets.
For the Indian market, investors should closely watch Brent crude, the US 10 year yield, the USD/INR exchange rate and Nifty's 23,250 level. If crude starts cooling and US yields stabilize, some of the selling pressure could ease. If crude moves firmly above $110 and the US 10 year yield sustains above 5%, it could signal that the market is entering a more difficult environment.Rising crude oil and US Treasury yields, along with geopolitical tensions and FII selling,this combination is causing such a sharp reaction in Indian equities.
Source: www.moneycontrol.com
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