Equity markets generally underperform when bond yields rise. (Representative image)
NEW DELHI: Equity indices fell sharply on Friday as a spike in global bond yields stirred up inflation worries and spooked investors across the world.
nosedived 1,939 points or 3.80 per cent to close at 49,100; while the broader
tanked 568 points or 3.76 per cent to close at 14,529.
Banking and financial stocks witnessed a major hit amid heavy global selloff.
Major laggards in the BSE pack included ONGC, Mahindra & Mahindra, PowerGrid, Bajaj Finserv, Axis Bank and Kotak Mahindra Bank with their stocks falling as much as 6.34 per cent.
On the NSE platform, all the sub-indices finished in red with Nifty Financial Service and Nifty Private Bank down as much as 4.93 per cent.
Here are the top reasons behind the plunge:
* Rise in US bond yields
The recent rise in US bond yields reflects growing confidence that the economy is on the path to recovery, but also raises expectations that inflation is headed higher. This might prompt central banks eventually to raise interest rates to cool price hikes.
In the past, worries over a possible tapering off of the massive amounts of cash central banks have been pumping into economies have triggered selloffs in what some call a "taper tantrum."
The "taper tantrum" of 2013 is infamous for how the sudden rise in bond yield caused equity markets to slide, as it resulted in mass selling of bonds.
"There is nervousness due to rising yields. The jump is a fresh wound and we are seeing a knee-jerk reaction," Rusmik Oza, head of fundamental research at Kotak Securities, told news agency Reuters.
* Fear of foreign fund outflows
Investors feared foreign fund outflows as bond yields are inversely proportional to equity returns. When bond yields rise, equity markets generally underperform.
* Why investors are 'jumpy'
US Federal Reserve chair Jerome Powell has affirmed the central bank's commitment to low interest rates in testimony to legislators in Washington this week. Asian and European central banks also have insisted they are committed to supporting economies for the long haul. But still, investors are jumpy.
"It seems like traders and investors aren't listening to official policymakers, and they have set their minds on one thing: interest rates will increase sooner than later," Naeem Aslam of Avatrade.com, told Associated Press.
"Another reality about the stock market is also that the massive stock rally that we have experienced so far seems to have run out of steam," Aslam added.
* GDP data awaited
Investors at the domestic front also awaited GDP (gross domestic product) data to be released later in the day. A Reuters poll predicted that India's economy likely returned to growth in the December quarter (Q3 2020-21) after contracting 7.5 per cent in the July-September (Q2) period.
(With inputs from agencies)