Laurence Balanco flags 5% downside risk for Nifty amid global yield surge

Global financial markets are undergoing a notable shift in sentiment as a sharp rise in sovereign bond yields across the US, Japan, the UK, Germany, and France triggers a broad risk-off move across equities and commodities. Speaking to ET Now, market strategist Laurence Balanco from CLSA noted that markets are no longer primarily reacting to traditional risk signals like oil, but are now increasingly driven by movements in global bond yields. He highlighted that the recent rise—where US 2-year yields moved above 4% and 10-year yields crossed 4.5%, while longer-duration bonds also joined the uptrend—has tightened liquidity conditions and increased pressure on risk assets.According to him, this environment is now translating into corrective action across global equity markets, with further downside risk emerging as yield momentum continues.
Balanco added that the weakness is particularly visible in high-beta areas such as technology and semiconductors, which had led the rally since the March lows. He pointed out that semiconductor indices and key Asian benchmarks have started breaking below short-term moving averages, indicating a potential loss of momentum in the AI-led trade. At the same time, cyclical sectors and commodities are also coming under pressure as rising real yields weigh on valuations. He noted that base metals and precious metals are both facing headwinds, reinforcing the broader risk-off tone.

In commodities, gold and silver have reversed sharply after recent strength, largely due to rising real interest rates. Balanco explained that higher real yields typically act as a headwind for precious metals, and the latest move has pushed both gold and silver back into prior trading ranges. Silver, which had recently broken above key technical levels, has seen a particularly sharp reversal, while gold remains capped below its 50-day moving average.

Oil, meanwhile, continues to trade in a wide range, with Brent oscillating roughly between the mid-90s and near 120 levels. Balanco noted that while oil is not breaking out further, its elevated range continues to support inflation concerns, indirectly feeding into the bond market selloff. He added that the risk-off indicator has now shifted from oil-led stress to yield-led stress, with bond markets increasingly signalling inflation persistence.

On Indian equities, Balanco described the Nifty as broadly range-bound since late 2024, with resistance near 26,300 and support in the 21,700–21,800 zone. He believes there is still room for downside of around 5% if global risk-off sentiment persists. However, he highlighted relative strength in midcap stocks, which continue to show resilience and in some cases are testing prior highs, making them a more constructive segment compared to largecaps.

Within sectors, he identified banks and autos as key areas of weakness. Banking, in particular, is showing broad-based stress across both private and PSU lenders, with breakdowns emerging in recent sessions. Autos, despite earlier strong performance from names like Mahindra & Mahindra, are also showing signs of exhaustion, with multiple stocks forming lower highs and trending toward a developing downtrend.In contrast, telecom and select defensives are showing relative stability. Bharti Airtel stands out as a low-volatility name attempting to break above its 200-day moving average, suggesting potential for both defensive and absolute outperformance. In IT, while largecaps such as Infosys and HCL Technologies are seeing rebound moves, Balanco views them as counter-trend rallies facing overhead resistance, whereas midcap IT names like Coforge and Persistent continue to display stronger relative strength within trading ranges.

In pharma, the sector has recently broken out of a multi-year trading range and is showing both defensive and absolute strength. Select stocks such as Sun Pharma and Aurobindo are outperforming, with midcaps leading momentum within the space. Overall, Balanco’s view suggests that while pockets of strength remain in midcaps, pharma, and select defensives, the broader market environment is shifting toward caution as rising global yields dominate risk sentiment and limit upside across asset classes.