The Indian equity indices have fallen in Thursday’s trade on the back of global cues. Not just domestic markets, but indices all over Asia followed the overnight fall in the US markets. The indices in the US fell as the new budget is likely to strain the heavily indebted US government.
The spillover effect of this could be seen in Indian tech stocks, which lost the most in today’s session and were among the biggest movers of the Nifty 50. All the constituents of the Nifty IT index were trading in the red.
“Bond markets from the US to Japan to Europe are throwing a tantrum as a warning. US markets had a 1% plus fall on the back of worries about the debt and deficit impact of the Trump tax cuts and spending plan. Asian markets are likewise following the US lead. An auction of a US 20-year Treasury was not met with as much enthusiasm as anticipated,” said market veteran Ajay Bagga. “We think the structural issues in the US fiscal math and debt burden remain, however, markets are edgy without giving time for developments to play out.”
The Nifty IT index was down 1.32%, trading at 37,044.95. The share price of Tech Mahindra was the biggest loser in the index. Tech Mahindra’s stock price fell 2.5% to an intra-day low of Rs 1,558 on the National Stock Exchange.
Other tech stocks followed suit, the share price of Persistent Systems trailed Tech Mahindra’s stock price, dropping as much as 3.2% to an intra-day low of Rs 5,487.
Wipro’s share price pulled back 1.93% to an intra-day low of Rs 246.06 on the NSE.
To give you context between the US economy and Indian tech stocks, a big chunk of revenue of the Indian IT services companies comes from the US, which makes it important for investors to track the health of the US markets.
Why are investors selling the US G-Secs?
Coming to what happened in the US, the US 10-year bond yields rose sharply. To make it easier, the investors are dumping the US government’s Treasury bills, due to which bond yields have risen. Recently, Moody’s lowered the US credit rating from Aaa to Aa1, citing rising public debt and expanding budget deficit.
The sell-off of the US treasury bills intensified by the approval of President Trump’s tax-cut legislation by a key congressional committee, which may further increase the debt load.
The higher yields increase the government’s net interest costs and deficits, which affect the dollar and foreign demand for US assets like Treasuries.