A tango: Indian stock market valuation rises as US government bond yields decline

Indian stock market valuations moved in parallel with 10-year US government bond yields. While US government bond yields have fallen by almost 70 basis points since late October this year, from 4.93 per cent to 4.23 per cent on Friday, Sensex yields have fallen by almost 45 basis points – from 4.5 per cent to 4. .05 percent.

Previously, earnings yields on Indian stocks rose in sync with US government bond yields. Sensex's earnings yield rose 46 basis points between July and September, eclipsing the 96 basis points rise in the US 10-year yield.

The earnings yield, the inverse of a security's price-to-earnings ratio (P/E), is the potential dividend for