Good morning!

The global markets were once again weighed down by geopolitical concerns last week, as crude oil prices rose, and expectations of the US Federal Reserve interest rate drop by June dwindled. For the first time in five weeks, Indian market indices fell. Concerns about the war in West Asia and the possibility of a postponement in the interest rate cuts caused technology companies that are vulnerable to shifts in US interest rates to decline by 4.71⁒. After a five-month upswing, US stocks have fallen for six straight trading sessions. On the domestic political front, voting for the 2024 Lok Sabha election began on Friday with the first phase. 62⁒ of voters cast ballots in the first round, which took place in 21 states and union territories; however, violence was reported in Manipur and West Bengal.

Seven rounds of voting will conclude on June 1st. The results of the Lok Sabha election will be announced on June 4, 2024.

Domestic Markets Last Week

• Indian stock indexes fell for the first time in five weeks despite a strong run by HDFC Bank stock due to concerns about the US interest rate and the war situation in West Asia. HDFC Bank—the largest weight in the Nifty50 index—climbed 2.45⁒ before its quarterly results to be announced on Saturday, which led the financial services index to 1.31⁒. As optimism for early rate cuts waned as market giants TCS and Infosys released disappointing reports, US-rate-sensitive IT equities had a 4.71⁒ weekly loss, their second-worst week in a year.
• Government bond yields soared to levels not seen since January 5th and climbed for the third trading session in a row last week. Foreign portfolio investors dumped their bond holdings after risk-off sentiment was triggered by escalating geopolitical tensions in West Asia. A combination of factors, including a weakness in the rupee versus the dollar and rising crude oil prices.
• The rupee strengthened slightly against the dollar on Friday after falling for four straight sessions last week. The local currency touched a new record low of 83.5700 against the dollar as crude oil prices rose and investors chose safe-haven assets after the renewed tension between Israel and Iran. On Friday, the rupee gained as banks sold the dollar for exporters and foreign fund inflows into domestic equities.

Global Markets Last Week

• US stocks fell for the sixth trading session. Equities have fallen after a five-month rise that began in November amid expectations the Fed will decrease rates in the first half of the year. Hotter-than-expected inflation data, robust employment market data, Middle East geopolitical issues that have lifted oil prices, and statements from Federal Reserve officials like Chair Jerome Powell have dampened hopes of rate cuts. On Friday, the Nasdaq and S&P 500 dipped as Netflix shares slumped, but American Express held the Dow index up after quarterly reports.
• Treasury yields surged every week after strong data from the Philadelphia Federal Reserve's manufacturing index for April came in at 15.5 points, which was much higher than the expected 2.5 points. The US Fed chair Powell's remarks also weighed treasuries about sluggish progress in curtailing inflation and getting it to targeted 2⁒.
• The US dollar index rose against the major basket of currencies for the week, helped by a rise in US Treasury yields. Investors closely watched new economic data and Federal Reserve speeches to get a sense of how interest rates are likely to change in the future. Fears that the Federal Reserve will cut rates soon also lowered confidence.

Corporate Bonds

Secondary Market

Yields rose by 7 to 9 basis points for the second straight week in the secondary market, tracking the rise in government bond yields and US treasuries. Few Insurance companies, mutual funds, and pension funds were buying bonds, while banks sold short to medium-term corporate bonds.

Outlook For This Week

This week, domestic shares will continue to focus on corporate earnings from HDFC Bank, Axis Bank, Reliance Industries, and Hindustan Unilever among others. Government bonds and the rupee may take cues from any sharp movements in crude oil prices and US treasuries. The RBI may intervene by selling dollars to help the rupee if it falls to record lows.

In Other news

• RBI's monetary policy committee refuses to drop its guard on inflation.
• FM Sitharaman says electoral bonds will be revived if BJP is elected to power.
• India's strife-torn Manipur overcomes fear of violence to vote in big numbers.
• India discussed oil market volatility with the OPEC chief, the government says.
• US military strategy tested as Iran-Israel warfare comes out of the shadows.
• Week of Iran-Israel strikes marks a 'game changer' in the Mideast.
• UN agency agreed to help distribute aid to Gaza via sea route, says US.
• Sudan's war is being fuelled by weapons from foreign supporters says the UN.
• Over 2,100 people evacuated as Indonesian volcano spews clouds of ash.
• Fed survey cites inflation, and US election as key financial stability risks.
• Tata Group is in talks to buy Pegatron's iPhone operations as soon as May.
• Manappuram Finance to raise up to $500 mn via external commercial borrowing.