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U.S. 10-year bond yield has risen almost 100 basis points to reach ~3.6% since August 2022 on the incrementally hawkish stance of the U.S. Fed although 10-year India bond yield has remained flat.
Consequently, the spread of 10-year bond yield of India over U.S. has reached ~360 bps, which is the lowest since August 2009. Spread of 10-year bond yield of India over U.S. has a largely positive correlation with the price-to-earnings of Nifty50 based on data for past two decades with very few exceptions.
In other words, as the spread of 10-year bond yield of India over U.S. increases / decreases, the valuation of the Nifty50 index expressed in terms of forward P/E has historically shown an increasing / decreasing trend.
Going by the correlation for the past 20 years, the recent decline in spread can potentially put pressure on the P/E multiple of the Nifty50.
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