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Global policy tightening plans, FPI pullout pummel markets

Stock markets on Monday witnessed a bloodbath with main indices plummeting by up to 3.29 per cent in intra-day trade as sustained foreign investor selling and policy tightening plans by global central banks amid the rising Omicron cases hit the sentiment. The benchmark Sensex, which fell by 1,879 points at one stage, closed down 1,190 points, or 2.09 per cent, at 55,822.01. The NSE Nifty dove 371 points to 16,614.20.

The sell-off in Monday’s trade is one of the most significant selling pressures witnessed recently on Dalal Street. RIL fell 2.73 per cent and HDFC Bank plunged 3.14 per cent. Tata Steel (5.20 per cent) and Tata Motors (4.86 per cent) also fell. The BSE Mid-cap index fell 3.42 per cent and Small-cap index plunged 3.31 per cent.

Investors’ wealth, or market capitalisation, fell by Rs 6.8 lakh crore to Rs 252 lakh crore during the day. With Monday’s decline, the Sensex has fallen over 2,000 points in the last two sessions.

However, the rupee gained on Monday, rising further by 16 paise to settle at 75.90 against the US dollar on dollar sales by banks. Further, easing crude oil prices also revived an otherwise weak forex market sentiment.

In December alone, FPIs withdrew Rs 25,252 crore from stock markets and Rs 73,526 crore from stocks during October 1-December 17, as per data from the National Securities Depository Ltd. In calendar year 2021 so far, FPIs have pulled out Rs 47,126 crore.


Global rate hike signals

Foreign portfolio investors have been pulling out of Indian markets amid indications from global central banks that interest rates are likely to rise in coming quarters.

Major global central banks like US Federal Reserve have already indicated that easy money policy will be tapered down and interest rates are likely to be jacked up to tackle rising inflation. Bank of England has already increased the policy rate on Friday. If US Fed and other major central banks hike rates, FPI outflow is set to intensify in the coming weeks. In an effort to ramp up its efforts against an almost four decadal high inflation, the Fed signalled that its reign of easy policy is coming to an end. The planned $30 billion per month acceleration of tapering will bring the pandemic-driven bond purchases to a close in March 2022.

The rising Omicron cases in India and other countries have prompted investors to be cautious. Investors are mostly worried about the likelihood of travel restrictions and lockdowns which will impact the economy. The Indian economy which is on the comeback trail is likely to take a hit if Omicron cases rise sharply in India. Going forward, the emergence of the Omicron strain has heightened the uncertainty in the global macroeconomic environment, accelerating risks to global trade with resumption of travel restrictions/ quarantine rules at major ports and airports, the RBI ‘State of the economy’ report said.

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