A surge in US treasury yields overnight to a 16-year high also kept investors on the edge, with market participants weighing the impact of elevated interest rates on equity valuations. BSE's Sensex dropped 610.37 points, or 0.92%, to close at 65,508.32. NSE's Nifty fell 192.90 points, or 0.98%, to end at 19,523.55.
"Global sentiments have been dampened over a sharp rise in Brent crude price and 10-year bond yields in the US," said Siddhartha Khemka, head, retail research, at Motilal Oswal Financial Services. "Also concerns over the likelihood of interest rates remaining higher for longer have been adding to the global overhang."
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Brent Crude was at $96.12 a barrel on Thursday - around the highest level in over a year - after US crude stocks fell, adding to concerns over tightness in the market. Firm oil prices do not bode well for India, which imports more than 80% of the crude oil it requires. The recent surge in oil prices has been one of the main contributors to the recent drop in the stock market.
3.5% Down From All-Time Highs
Both Sensex and Nifty have fallen nearly 3.5% from their all-time highs.
The Nifty had hit its record high of 20,222.45 on September 15. Analysts do not rule out the possibility of the index dropping to 19,100-19,200 levels in the near term if oil prices and US bond yields continue to remain firm. On Wednesday, yields on US bonds rose to 4.612% - the highest since 2007 - on worries that sticky inflation may force the US Federal Reserve to continue to keep interest rates higher for a longer period. The benchmark 10-year notes were up at 4.641% on Thursday. "The global environment is turning extremely volatile with increasing headwinds for emerging economies, amid increasing narrative of higher rates for longer as US growth remains resilient and inflation faces upside risks," Kotak Mahindra Bank chief economist Upasna Bhardwaj said. "Narrowing interest rate differentials to record low levels poses severe financial instability, thereby warranting a cautious approach by the RBI." At home, NSE's Volatility Index surged 10.68% to 12.8, suggesting traders are seeing risks in the market in the near term. The Nifty Midcap 150 dropped 1.1% and Nifty Small-cap 250 fell 0.3%. On the BSE, out of the 3,790 shares traded, 2,158 declined, while 1,504 advanced. Elsewhere in Asia, the main indices in China gained 0.1%, Hong Kong fell 1.4%, South Korea ended flat and Taiwan rose 0.3% on Thursday.
European shares snapped a five-day losing streak to edge higher on Thursday. The pan-Europe index Stoxx 600 rose 0.4%. In the US, the Dow Jones Industrial Average was up 0.42%, the S&P 500 up 0.59% and the Nasdaq Composite was up 0.62% till the time of going to press. Foreign portfolio investors extended their September's selling spree, dumping shares worth Rs 3,364 crore on Thursday.
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