Indian shares extend losing run on elevated oil, bond yields

Indian share markets witnessed a continued decline on Tuesday as heightened oil prices and elevated bond yields, prompted by the lack of a Middle East peace agreement, fueled apprehensions of foreign investor outflows. The Nifty 50 index dropped 0.28% to 22,716.2, while the BSE Sensex fell 0.33% to 72,529.07. The 50-stock index experienced a brief dip of 2.5% during the closing auction session, triggered by volatility from the monthly expiry of derivatives contracts.

The benchmark indexes have already shed close to 2% in a holiday-reduced week, adding to a nearly 6% loss over the past seven weeks, marking one of their longest losing streaks on record. Brent crude futures were trading near $105 a barrel, while the benchmark 10-year US Treasury yield surged to a 19-year high above 5.27%. Rising US Treasury yields have increased the risk-free return available to global investors, rendering Indian equities less attractive to foreign portfolio investors, potentially prompting capital shifts out of India, according to Nitesh Arora, managing partner at Equirus Family Office.

Foreign institutional investors sold Indian shares worth 53.53 billion rupees ($558 million) on Monday, marking a four-week high. They have collectively sold $2.17 billion worth of shares in September, following two months of buying spurred by the central bank's efforts to attract dollar inflows into the economy. The Nifty 50 index has declined 5.7% so far in September, while MSCI's broadest Asia Pacific index outside Japan is down approximately 1%.

India's underperformance is primarily attributed to its increased dependence on imported oil. Rising oil prices could exacerbate inflation, increase the import bill, and compress growth and corporate margins for the world's third-largest crude importer. Out of the 16 major sectors, 13 recorded losses on Tuesday. The larger-cap stocks and mid-cap stocks both experienced declines, with the broader small-caps and mid-caps dropping 0.8% and 1%, respectively.

Heavyweight banks declined 0.4%, and the IT sector fell 1.5%. Many Tata group companies saw a decline on the day, with Tata Chemicals shedding 4.5% and Tata Investment losing 2.9% due to waning prospects of Tata Sons' listing.