The Street feels global heat

Bond markets are trying to impose fiscal discipline on governments as borrowing by advanced economies reaches extraordinary levels. Geopolitics isn't helping, with disrupted energy supplies stoking inflation worldwide. Central bankers are raising rates to tame prices, hardening their currencies. All this is grim news for Indian equities, already facing relentless foreign selling. Thursday's sell-off - Sensex fell 571 points and Nifty 199 points, extending an 8-week losing streak - is a sharp reminder of how these global pressures are feeding into Dalal Street. Domestic factors add to the pressure: an erratic monsoon could weigh on rural incomes while keeping food inflation elevated. Household savings have stepped into the breach, pushing more money into equities despite prolonged market decline.

Indian investors are pitted against concerted pressure in international financial markets. A fall in crude below $100 a barrel would ease some immediate concerns, but a return to the pre-Iran equilibrium looks remote. Nor are bond vigilantes likely to lower their guard. Major economies now spend more servicing their debt than the world invests in AI, by one estimate. A bond-market sell-off has been anticipated for some time; now that it is underway, the squeeze is unlikely to ease soon. Central banks are again seen as being behind the inflation curve, leaving them little choice but to push rates higher, even at the cost of global growth.

Commodity and bond markets will remain adverse for emerging economies such as India. Global equity investment is also increasingly concentrated in AI infrastructure, where India has little significant presence yet. Sustaining growth could become harder in an environment of expensive credit. Indian equities, however, are no longer as richly valued as they were a couple of years ago, with headline multiples moving towards historical averages after a prolonged correction. The correction could have been steeper but for the doughty Indian investor.