With Europe witnessing a fresh wave of lockdowns after a new variant of the novel coronavirus surfaced in the United Kingdom, domestic stock markets on Monday witnessed a huge sell-off with the 30-stock benchmark BSE Sensex plummeting 1,407 points.
Joining the global rout, the Sensex fell three per cent to 45,533.96, its sharpest slide in seven months, and the NSE Nifty plunged 432 points to 13,328.40. All sectoral indices ended in the negative with PSU banks, media, metals, realty, auto, banks and pharma indices leading the downtrend.
The new variant of the coronavirus in the UK spooked markets and stocks witnessed intense selling throughout afternoon trade. “While the street was bracing for a correction this week after a sharp up move, the sheer velocity of the fall across broader markets took the bulls by surprise as practically none of the key indices constituents were in the green today,” said S Ranganathan, Head of Research at LKP Securities.
The rupee declined 23 paise to settle at 73.79 against the US dollar on Monday following a massive sell-off in domestic equities and strong American currency overseas. However, softening crude prices and persistent foreign fund inflows restricted the rupee’s fall, forex dealers said.
While foreign portfolio investors have been net investors – Rs 1.13 lakh crore between November and now, they were net sellers to the tune of Rs 323 crore on Monday, according to provisional data available with stock exchanges. Domestic institutional investors saw a window of opportunity and emerged net buyers of equity worth Rs 486 crore on Monday.
Travel restrictions imposed by several countries to and from the UK have added concerns of yet another lockdown. European market witnessed further selling pressure as the UK and EU failed to reach a trade deal before the decided deadline. Markets are worried about the economy taking a U-turn again if lockdown is imposed and businesses are shut to tackle the new variant.
Among global indices, all major European indices fell between 2.5 per cent and 3.5 per cent. At 7:45 IST, while FTSE 100 in the UK was down 2.7 per cent, Dax in Germany and CAC 40 in France fell sharply by 3.1 per cent.
Jaideep Hansraj, MD & CEO, Kotak Securities, said, “The new strain of coronavirus in the UK has led to correction across European markets. Parts of Asia like Hong Kong are also considering measures such as curfews and shutdowns to tame the virus. As we head towards Christmas vacation and calendar year end, FPI flows are expected to moderate which could also be one of the causes of steep correction. Lack of positive news flows has seen Indian market taking a breather. After all, it has been a non-stop rally for the past 50 days which started after US elections.”
The market was already in an overbought position with huge foreign investment flows pushing up the Sensex to new peaks. The vulnerability of the market was high due to quick gains made in the ongoing rally leading to low margin of safety. If the new Covid variant spreads across the world, there is a possibility that the market will witness further declines. However, if countries are able to tackle the spread of the pandemic, the markets will bounce back in a few days.
“We do not expect a big correction… but rather a consolidation in the short-term, of not more than 7-10 per cent in the main indices. Buying at dips can be considered as a strategy in the falling market,” said Vinod Nair, Head of Research at Geojit Financial services.
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