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Stocks tank 2% as Omicron variant spooks investors


MUMBAI :

Indian stocks tanked 2% on Monday as increasing cases of Omicron spooked investors who feared its spread would start to take a toll on businesses if countries bring back stringent curbs to contain the spread of the new coronavirus variant.

Worries over foreign capital flow into Indian markets also kept investors jittery as the Sensex closed at 55,822.01, down 2.09%, and the Nifty ended the day at 16,614.20, declining 2.18%. Intraday, the two indices fell as much as 3.3% and 3.39%, respectively.

From 10 December, the Sensex and Nifty have corrected by 5.04% and 5.12%, respectively, while the volatility index VIX shot up 18.05%, indicating that investors are concerned about the market direction in the coming days.

Deep dives

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Deep dives

Rising Omicron cases have added to global macro challenges such as inflation and tightening of monetary policies by major central banks and are likely to keep investors on edge in the coming days. As a result, markets may continue to see selling pressure.

“Markets have corrected by ~10% from their peak, driven by consistent FII selling, tightening monetary policy by central banks globally and concern over economic recovery due to rising Omicron cases. The overall market breadth remains negative and would require strong positive triggers for changing the current negative trend. Selling pressure is intact at higher levels, and any recovery or bounce is being used by traders to go short on the market. Thus, we maintain our cautious view in the market for the next couple of days,” said brokerage Motilal Oswal in a note on Monday.

Market experts see inflation and Omicron concerns playing a major role in the market direction going ahead and do not rule out further corrections.

“The sell-off in today’s trade is one of the most significant selling pressures witnessed recently on Dalal Street. As long as headline inflation and Omicron risks remain elevated, investors need to remain nimble-footed as the economic recovery will probably be in a zig-zag mode. The ongoing pessimism indicates that the recent dramatic crash is nowhere near over,” said Prashant Tapse, vice-president (research) at Mehta Equities Ltd.

Other Asian markets, too, were under selling pressure on Monday, with Japan’s Nikkei 225 falling by 2.13% and Hong Kong’s Hang Seng closing 1.93% down, while the Shanghai Composite Index closed 1.07% lower as investors feared tighter pandemic curbs, especially in Europe due to a rise in covid cases.

“Asian share markets fell, and oil prices slid on Monday as surging Omicron cases triggered tighter restrictions in Europe and threatened to drag on the global economy into the new year. European stocks fell more than 2% on Monday amid a global sell-off in equities, with investors fretting over the spectre of tighter pandemic curbs hitting the global economy as cases of the Omicron covid-19 variant surge,” said Deepak Jasani, head of retail research at HDFC Securities.

Jasani said other global cues such as a political logjam in the US over President Joe Biden’s massive infrastructure spending bill are also keeping investors worried.

“Investors were also jolted by news that Senator Joe Manchin would not back Biden’s $1.75 trillion Build Back Better bill, dealing a massive blow to the president and his hopes for giving an extra boost to the world’s top economy. Goldman Sachs cut US real GDP forecast for the first quarter of 2022 to 2% versus 3% previously, and marginally reduced forecasts for the second and third quarters,” Jasani said.

Domestically, market watchers will keep a keen eye on foreign institutional investors who have been selling since October. The trend has continued into December as well.

“Traders were also worried as foreign portfolio investors (FPIs) have pulled out 17,696 crore from the Indian markets in December so far amid uncertainty. Additional pressure came in as RBI data showed forex reserves declining for the third consecutive week, India’s forex reserves dipped by $77 million to reach $635.83 billion for the week ended 10 December, which further impacted negatively to already weak sentiments,” said Narendra Solanki, head of research, investment services, Anand Rathi Financial Services.

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