Nifty 50 Index at risk as Indian bond yields surge, rupee crash

Indian stocks are stuck in a correction this week as concerns about the economy remain. The blue-chip Nifty 50 Index retreated to ₹23,650 on Tuesday, down by 10% from its highest point this year. This retreat has coincided with the crashing Indian rupee and bonds.

Indian stocks retreat amid US-Iran war concerns

The Nifty 50 Index has remained under pressure as investors remain concerned about the country’s economy amid the ongoing US-Iran war.

India has become highly exposed because of its overreliance on Gulf oil and gas, which comes months after the country reduced its Russian oil purchases amid US pressure. 

The war has pushed inflation higher in the country, with the most recent report showing that the headline CPI jumped to 3.48% in April from the previous 3.4%. It was the fastest inflation rate in over a year, and analysts predict that the situation will get worse in the near term. 

The soaring inflation has had a major impact on individuals and companies in the country, who are now paying more money. It has also raised the possibility that the Reserve Bank of India (RBI) will hike interest rates in the coming months.

Indian stocks have retreated this week amid concerns that Trump will restart the war, which has pushed crude oil prices higher. The most recent data shows that Brent and WTI prices have remained at an elevated levels this year. 

Soaring Indian bond yields and falling rupee

The Nifty 50 Index has also underperformed its global peers because of the risings surge in the cost of borrowing. Data shows that the ten-year bond yields jumped to 7.13%, its highest level since May 2024. It has been in a strong uptrend from last year’s low of 6.128%. 

Similarly, the five-year bond yields have soared to 6.934%, its highest point since March 2nd this year. Rising government bond yields make it more expensive for companies to borrow money, hitting their margins. 

Meanwhile, the Indian rupee has become one of the worst-performing currencies globally. The USD/INR pair has soared to 96.35, a record high, which is also much higher than last year’s low of 84. Also, the GBP/INR and EUR/INR have jumped to 129.27 and 112.19, respectively. 

A weaker Indian rupee makes stocks less attractive to foreign investors because they often lose when they convert their holdings to dollars. 

Nifty 50 Index technical analysis

Nifty 50 Index chart | Source: TradingView

The daily chart shows that the Nifty 50 Index bottomed at ₹22,165 in April as the impact of the war continue. It jumped to a high of ₹24,592 on April 21. It formed a double-top pattern, a common bearish reversal sign in technical analysis.

The index is attempting to fill the gap that formed on April 8 this year. It has also remained below the 50-day and 100-day moving averages. 

Therefore, the most likely scenario is where the index continues falling, potentially to the key support level at ₹23,000. On the flip side, a move above the 100-day moving average at ₹24,430 will invalidate the bearish outlook.