Indian equity markets rally nearly 1% as dollar retreats and US bond yields cool

Indian equity markets experienced a notable rally on Thursday, gaining nearly 1% in overall value, despite a hardening in oil prices and cooling US bond yields. This came after a week of declining performance, as the dollar retreated to its lowest point in three months and US long bond yields fell to levels not seen since the 2008 subprime crisis.

The Nifty increased by 153.55 points, or 0.64%, to reach 24,231.85, while the Sensex climbed by 628.04 points, or 0.82%, to close at 77,537.72. Midcap and smallcap stocks also saw gains, with the Nifty Midcap 150 rising 0.3% and the Nifty Smallcap 250 climbing 0.6%. Analysts explained that the US Federal Reserve's measures to curb long-term bond yields contributed to the dollar's decline, which positively impacted emerging markets and commodities.

This, in turn, helped alleviate pressure on the Indian rupee and reduced the likelihood of an Indian rate hike, leading to heightened performance in rate-sensitive stocks. Furthermore, the US Treasury's decision to double the buyback of 10-30-year bonds caused the 30-year yield to fall below the 5.33% mark, a 19-year high. However, the Indian 10-year government bond yield rose by five basis points, closing at 6.87% on Thursday.

This yield is expected to remain within the 6.80% to 6.90% range for some time as markets digest the shock. Fund flows into Indian risk assets are also influenced by US yields, with foreign portfolio investors selling shares worth Rs 583 crore on Thursday, while domestic institutions purchased shares worth Rs 3,537 crore. The rupee remained nearly unchanged at 95.70, close to its previous close of 95.75, as it was impacted by both positive factors from a weaker dollar index and central bank intervention, as well as negative factors stemming from high crude oil prices and import demand.