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Covid-19 concern and RIL stock: Why markets dived on Monday

Indian markets emerged as one of the biggest losers on Monday, weighed down by several factors. What is unnerving the markets, and what is the way forward? What should investors do?

Written by Sandeep Singh , Edited by Explained Desk | New Delhi |
Updated: November 23, 2021 10:20:14 am
Sensex fell by over a 1,000 points on Monday. (Express Photo: Amit Chakravarty, File)

The benchmark Sensex at the BSE fell sharply by over 1,000 points or 1.7 per cent in the afternoon trading hours, to trade at levels of around 58,700 on Monday. The markets were weighed down by concerns around rising Covid-19 cases in various countries, and a sharp fall of over 4 per cent in shares of Reliance industries following the decision by Saudi Aramco to drop its plan to pick 20 per cent stake in RIL’s oil-to-chemical business. The markets were also unnerved over the government taking a step back on its reform agenda, as it yielded to the protesting farmers and announced that it would repeal the three farm laws in the upcoming winter session of Parliament.

What is unnerving the markets?

After it hit a high of 62,245 on October 19, the benchmark Sensex has lost over 3,600 points or 5.8 per cent over the last one month. If expensive valuations emerged as a broad concern for the markets following the significant rally in the 10-month period between January and October, the Sensex fell sharply on Monday amidst growing concerns over fresh rise in Covid cases and imposition of restrictions/ lockdowns across several countries including in Europe.

The Indian markets emerged as one of the biggest loser on Monday as it was also weighed down by concerns over government taking a step back on its reform agenda as the Prime Minister, on Friday, announced that the government would repeal the three farm laws in the upcoming winter session of Parliament.

A sharp decline of 4 per cent in shares of Reliance Industries also pulled down the markets on Monday. On Friday, Reliance Industries announced that the company and Saudi Aramco have decided to drop the latter’s mega plan to acquire 20 per cent stake in RIL’s oil-to-chemical business “in light of the changed context”.

What is the way forward?

While the broad domestic economic fundamentals remain intact and markets would rise in the medium-to-long term, they are expected to remain under pressure over the coming weeks. If expensive valuations were a concern for domestic markets, fresh spike in Covid cases across Europe and other countries and its possible impact on the pace of global economic recovery is weighing on the investor sentiment.

Rise in inflation around the world and impact of proposed tapering in the asset purchase by US Federal Reserve is also expected to keep the markets under pressure for now.

What should investors do?

Experts say the current decline in markets, driven by near term concerns, is something that should not bother investors too much. Market participants say as the domestic economic recovery remains on track and the pace of vaccinations in India is good, markets should hit fresh highs going forward. They say these dips should be seen as investment entry points by investors who are underweight equities.

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