Omicron scare, FPI sell-off: Here's what spooked the markets on Monday

There was a bloodbath on Dalal Street on Monday as multiple headwinds hit global and domestic investors alike. The sharp surge in Omicron-based Covid-19 cases, especially in the UK and other European countries, hawkish policy stances of global central banks, and worries of a slowdown in economic recovery spoiled investors’ mood.

In intra-day deals, the 30-pack Sensex index plunged over 1,800 points to hit a multi-month low of 55,132. The broader Nifty50, on the other hand, breached below the 16,450 level and hit a low of 16,410.

The market breadth was extremely paltry with five stocks declining for every one stock that advanced on the BSE.

That said, analysts expect the downtrend to be arrested soon and steep correction will lead to value buying at lower levels.

“The negative sentiments are unlikely to last long. Omicron variant, though fast spreading, has not proved to be highly virulent as feared. Also, FIIs will turn buyers soon when valuations become attractive. Retail investors can use the corrections to buy high quality stocks, particularly financials, whose valuations have become attractive,” said V K Vijaykumar, chief investment strategist at Geojit Financial Services.

Here’s what spooked the Street on Monday:

Omicron scare

India's Omicron Coronavirus (Covid-19) count rose to 151 on Sunday after Maharashtra recently reported six more cases.

Globally, the United Kingdom reported over 12,000 confirmed cases of the fast-spreading Omicron variant of the coronavirus; Netherlands went into a complete lockdown on Sunday till at least January-mid; and Germany tightened travel restrictions for people coming from Britain.

These steps, analysts say, have soured sentiment on the Street as they pose a potential threat to the economic recovery.

FPI selling

A combination of concerns over high valuations, interest-rate hikes, and the emergence of a new Covid variant has led to foreign portfolio investors (FPIs) remaining net sellers of Indian equities.

Since October, FPIs have sold shares worth Rs 32,965 crore in the domestic market. Further, in December so far, the FPIs have pulled out Rs 17,696 crore. READ ABOUT FPI's STRATEGY HERE

According to Himanshu Srivastava, Associate Director – Manager Research, Morningtar India, the concerns over the highly transmissible Omicron variant of coronavirus persist and have impacted global growth outlook.

"Also, the economic growth has also been relatively slow, and India's earnings have not grown much," he added.

Dwindling rupee

The domestic currency continued to extend its weakness against the greenback amid heavy demand for the US dollar. The dollar index, which measures the currency against six major peers, stood at 96.629, not far from the peak at 96.938 reached last month.

The US dollar hovered near the highest since July of last year against major peers on Monday after a Federal Reserve official signaled a first pandemic-era interest rate hike could come as early as March. READ MORE HERE

"Exporters are advised to cover on upticks towards 76.25 levels. Importers are advised to cover on dips towards 74.50 level. The 3M range for USDINR is 73.80 – 76.00 and the 6M range is 73.50 – 76.50," said a note from IFA Global.

Financials, metals worst hit

While investors dumped shares of banks and non-banking finance companies (NBFCs) amid weakness in rupee (and subsequent hit on treasury yield income), export-oriented companies in the metal and automobile space bore the brunt of panic selling.

The Nifty Metal index tumbled 4 per cent intra-day while the Nifty Bank, Financial Services, and the Auto indices shed over 3 per cent each.

Individually, heavyweights like ICICI Bank, State Bank of India, HDFC Bank, Kotak Bank, Bajaj Finance, Bajaj Finserv, HDFC, Tata Steel, Jindal Steel, Tata Motors, M&M, and Maruti Suzuki fell in the range of 3-5 per cent.

Weak Asian cues: China cuts rates

Shares in Asia-Pacific were lower in Monday trade, with China slashing its benchmark lending rate for the first time in more than one-and-a-half years. Mainland Chinese stocks were lower, with the Shanghai composite down 0.75 per cent and the Shenzhen component falling 1.365 per cent. Hong Kong’s Hang Seng index slipped 1.44 per cent.

China on Monday announced a cut in its one-year loan prime rate from 3.85 per cent to 3.8 per cent — the first such move since April 2020.

Investors, however, have turned cautious post the move as China was the first major economy to shake off the bulk of the pandemic’s shock. But this year, especially since July, growth has been dragged down by muted consumer spending, Beijing’s zero-tolerance policy for controlling subsequent outbreaks and tighter regulations, particularly on the real estate sector