Explained: Why sensex, Nifty fell to 7-month low; what should investors
do
NEW DELHI :-
Equity indices plunged nearly 3% on Friday with thebenchmark BSE
sensex falling over 1,650 points as reports of a new
covid variant
spooked investor sentiments
The 30 share
BSE index Tumbled 1,688 point or 2.87% to close at 57,107;
While the
boader NSE Nifty settled 510 points or 2.91% lower at 17,026.
Induslnd band
was the top loser in the sensex pack falling as much as 6.01%
Followed by
Maruti, Tata Steel, NTPC, Bajaj Finance, HDFC were the other losers.
On the NES
platform, sub-indices nifty Realty, Metal, PSU Bank, and Auto Fell
as much as 6.26%.
* New Covid variant
Investors dumped risky assets after a new and possibly
vaccine-resistant coronavirus variant was identified in South Africa.
Even though not much is known about the variant yet, but it
has been detected it South Africa, Botswana, Israel and Hong Kong so far.
Scientists are of the view that the variant has an unusual
combination of mutations, may be able to evade immune responses and could be
more transmissible.
"There is a fear of this new variant spreading to other
countries which might agair derail the global economy," Hemang Jani,
equity strategist at Motilal Oswal Financial Services told news agency Reuters.
* Fresh lockdowns and restrictions
Some European countries have already tightened anti-virus
controls this week after their own case numbers spiked. Austria imposed a
10-day lockdown, while Italy restricted activity by unvaccinated people.
The United States has already advised people to avoid
Germany and Denmark.
The 27-nation EU proposed the travel suspension to member
governments after South Africa said the variant was spreading in its most
populous province.
The United Kingdom also banned flights from South Africa and
five nearby countries.
* Global stocks tumbled on Friday and oil fell below $80 a
barrel.
European stocks plunged 2.7 %, on track for their worst day since September 2020, with travel and leisure stocks particularly badly hit.
Germany's DAX sank 3% and Britain's FTSE 100 fell
2.7 % to its lowest in more than a month.
MSCI's index of Asian shares outside Japan fell 2.2%, its sharpest drop since August. Casino and beverage shares were hammered
in Hong Kong, while travel stocks dropped in Sydney and Tokyo.
Japan's Nikkei skidded 2.5% and S&P 500 futures
were last down 1.8%.
Oil prices slid, with US crude futures down 5.7% to
$73.96 a barrel and Brent crude down 4.66% to $78.38 amid fresh demand
fears.
* Foreign fund outflows for 7 days straight
Foreign institutional investors (FI Is) have been
consistently withdrawing funds from Indian markets since the past 7 sessions.
On Thursday as well, FlIs were net seller in the capital
market, as they offloaded shares worth Rs 2,300.65 crore, exchange data showed.
"Sustained selling by Fl Is for the seventh consecutive
day is a major sentiment negative for the market," VK Vijayaku mar, Chief
investment Strategist at Geojit Financial Services told news agency PTI.
*Concerns over rising inflation
They also foresaw the possibility of raising rates
"sooner than participants currently anticipated."
That fueled investor fears the Fed and other central banks
might feel pressure to withdraw economic stimulus that has been boosting stock
prices. Fed officials earlier indicated they might raise rates late next year.
How much is the fall?
Both sensex and Nifty were experiencing a stellar run since
last year and scaling fresh record highs in almost every session.
The BSE sensex hit its last record high of 62,245 on October
19. Since then, it has plunged over 5,000 points or over 8% till
today's closing of 57,107.
In fact this is the 2nd time in this week itself that the
stock markets have witnessed a crash of over 1,000 points. On November 22
(Monday), the indices had plunged nearly 2% with the sensex closing at
58,466.
In all if we see, markets saw sharp correction this week
amid renewed concerns pertaining to Covid-19.
Markets saw sharp correction this week amid renewed concerns
pertaining to Covid-19. Sensex declined 3,181 points or 4%in total
during this week. The broader Nifty also declined 4%.
What should investors do?
The new Covid variant is sure a cause of concern for
investors globally as initial reports suggest that it may have the potential to
hamper the process of economic recovery made by the countries.
However, India has not yet raised any alarm over the
situation as nothing much is known yet about the virus. But, it will continue
to screen passengers arriving from certain countries diligently.
As of now, investors should not be much worried about the
situation. But, experts do expect markets to remain under some pressure during
the short run. Though, it may improve in the medium to long run.
If we look at the past trends, we can see that even during
the second wave of Covid in India during April-June, there was not much impact
on the bourses.
In fact, stock markets have remained in the upward
trajectory ever since the massive pandemic-induced fall in March 2020 when the
entire world went into lockdown. Since then, stock markets have been one of the
most favoured medium for investment.
Besides, India's fundamentals have been pretty strong since
the past couple of quarters. Its gross domestic product (GDP) growth in Q1 was
the best ever recorded for the country, owing to low base effect. If recent
trends are to be seen, almost all major indicators points towards a sharp
recovery.
The economy expanded by1.6% and 20.1% in the
January-March and April-June quarters, respectively.