Hawkish stance, Covid worries rattle markets; investors lose Rs 4.6 trn

Nifty ends below 17,000 mark, Sensex sees biggest decline since December 6

The benchmark indices fell as a hawkish stance by central banks and rising Omicron concerns rattled investors, who lost Rs 4.65 trillion on Friday.

The benchmark Sensex fell 889 points to end the session at 57,011, a decline of 1.5 per cent. For Sensex, Friday’s decline is the biggest since December 6. The Nifty, on the other hand, fell 263 points to close at 16,985, a drop of 1.5 per cent. The Nifty closed below the 17,000 mark after 10 days.

The Bank of England (BoE) on Thursday became the first major central bank to raise interest rates since the Covid-19 pandemic struck. The central bank governor attributed the surprise hike to the outlook for persistent inflation. The BoE had earlier maintained that price pressures were transitory and likely to pass in the next few months.

On Wednesday, the US Federal Reserve (Fed) said it would double the pace at which it is tapering its monthly bond purchases. It is planning to conclude the bond purchase programme in early-2022, against mid-year as planned earlier. The Fed also indicated its plans to hike interest rates faster than expected.

According to Refinitiv Eikon, foreign institutional investors (FIIs) have sold $728 million worth of Indian equities this week till Thursday's close. The figure for the month stands at $1.73 billion.

Analysts said central banks prioritise the fight against inflation by withdrawing monetary support. The stance taken by central banks has led to worries about whether more pain is in the offing for equities which have more than doubled from March lows.

“Central banks have been saying that inflation is transitory. But inflation seems to be sticky. An aggressive tapering and early hike were not exactly what the markets were expecting,” said UR Bhat, Founder, Alphaniti Fintech.

“Even in India, wholesale inflation is high. It is only a matter of time before the Reserve Bank of India (RBI) starts hiking rates. Moreover, the foreign portfolio investors have sold aggressively, and retail investors have largely supported the markets. One is doubtful how long they will continue to provide support.”

Andrew Holland, CEO, Avendus Capital Alternate Strategies, said the central banks may have made a policy misstep by terming inflation transitory. “Will they now make up for this misstep by tightening too quickly? That’s what markets are going to grapple within the next few months.”

Meanwhile, Covid-19 cases continued to rise, with the UK reporting a second consecutive record rise on Thursday. South Korea rolled back its easing of restrictions after new infections rose and health workers warned of mayhem in hospitals.

Earlier this week, the World Health Organization warned that existing vaccines might be less effective against infection and transmission of the Omicron variant.

“Overall the markets remain in a tight range with bearish undertone as selling pressure is intact at higher levels,” said Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services.

“Negative global cues, continued FII selling, absence of any positive trigger and increasing cases of Omicron are likely to continue putting pressure on the market. Thus, traders are advised to maintain their negative bias in the market for the next few days.”

Nagaraj Shetti, technical analyst, HDFC Securities, said the markets continued intraday weakness in the early-mid part of the session. “One may expect further weakness down to 16,750 and lower by next week. Immediate resistance is placed at 17,180 levels.”

The market breadth was weak, with 2,353 stocks declining against 983 advances. All the Sensex constituents barring five fell. All the sectoral indices on the BSE except one declined. Realty stocks fell the most, while their sectoral index slipped 3.8 per cent.