Black Friday: Sensex sinks 1,400 points. What's spooking the markets today?

Here are the key reasons why the markets traded weak on Friday.

It was truly a ‘Black Friday’ for the Indian markets that saw an across-the-board sell-off. The S&P BSE Sensex shaved-off over 1,400 points in intra-day deals. Its counterpart on the National Stock Exchange, the Nifty50 index, lost over 400 points.

So, what’s spooking the markets today?

For one, the negative sentiment on Friday in the Indian markets was on account of weak global cues. Most Asian markets were a sea of red with Japan’s Nikkei down 2 per cent and Straits Times slipping nearly one per cent. Shanghai Composite, Kospi and Taiwan were down 0.2-0.4 per cent, each. The US markets, however, were shut on account of Thanksgiving holiday.

This weak sentiment across Asian markets was triggered by the new Covid variant, which investors believe, can force countries to impose lockdown again and derail the already fragile economic recovery. That apart, sooner-than-expected rate hike by the US Federal Reserve (US Fed) was also on their mind. Investors and traders, according to analysts, expect the US central bank to raise rates faster on the back of the recently released FOMC minutes. 

"Key US banks scrambling to revise their rates views in the wake of the Fed’s minutes. One headline is the Fed now seen accelerating tapering to $30 billion a month, ending it by mid-2022, and hiking in June, September, and December, then twice in 2023, taking Fed funds up 125 basis points (bps). That would either see US 10-year yields move significantly higher, or the US curve threaten to invert," said analysts at Rabobank International in a note.

The major concern, however, for the markets is the new Covid variant ‘Botswana’, nicknamed 'Nu’, that has been detected in South Africa. According to reports, the World Health Organization (WHO) is convening an emergency meeting Friday to discuss this potentially rapidly spreading Covid strain. READ ABOUT IT HERE

The B1.1.529 Covid variant suddenly surging across Southern Africa has mutations that could potentially mean higher transmissibility and the ability to evade vaccine defences, reports suggest. Scientists are worried in equal measure, and are talking about it as potentially the ‘next Delta’.

"With the depth of winter fast approaching in the northern hemisphere, this renewed Covid outbreak is clearly the biggest risk to GREED & fear’s recommended cyclical trade. But GREED & fear will stick with it for now in the absence of any concrete evidence of a new Covid variant against which vaccines are not effective. Effective treatment is also now seemingly on the horizon with Pfizer’s new Covid antiviral pill," wrote Christopher Wood, global head of equity strategy at Jefferies in his weekly note to investors, GREED & fear.

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Meanwhile, the Government of India has asked all states and Union Territories to conduct rigorous screening and testing of all travellers coming from or transiting through South Africa, Hong Kong and Botswana, where a new Covid-19 variant of serious public health implications has been reported. READ ABOUT IT HERE

The third reason for the Indian markets to be nervous amid these developments is the inflation scare led by firm commodity prices, including crude oil. Most global brokerages such as UBS, BofA Securities, Goldman Sachs, Nomura and Morgan Stanley have been sounding caution on the valuation of the Indian markets. 

“Nifty has an important support level at 17,200 level. If it sustains above this support on a closing basis, one can expect it to trade in the range of 17200-17500 over the next few sessions," said Likhita, senior research analyst at Capitalvia Global Research.