Indian stocks plunged on Monday, dragged down by news of the swift spread of the Omicron strain of the coronavirus in India and weakness in other Asian markets.
The BSE Sensex dropped 949.32 points, or 1.65%, to 56,747.14, and the National Stock Exchange’s Nifty index shed 1.65% to 16,912.25. Markets in other Asia-Pacific regions were mostly down, with Hong Kong’s Hang Seng index declining 1.76%. In China, the Shanghai composite fell 0.5%, Japan’s Nikkei 225 fell 0.36%, and South Korea’s Kospi index slipped 0.17%.
“Ambiguity surrounding Omicron continued to dent the morale of domestic investors ahead of the important Reserve Bank of India policy review on Wednesday. The domestic market is expected to be volatile as the near term will be dominated by developments on new variants and Reserve Bank of India’s and US Federal Reserve’s policy decisions. The market expects RBI to hold on to the accommodative policy, considering short-term uncertainties,” said Vinod Nair, head of research, Geojit Financial Services.
The Omicron variant of covid-19 has been spreading rapidly in India, with the number of people who contracted the new variant of the coronavirus rising to 21 till Sunday after the first case was detected just four days ago.
Adding to investor anxiety is the RBI’s ongoing monetary policy review. However, economists expect the central bank’s monetary policy committee to keep interest rates on hold and delay policy normalization because the Omicron variant may pose risks to India’s economic recovery, according to a Mint poll of bankers and economists.
Reflecting the nervousness among investors, India VIX, a volatility index, jumped nearly 9% to end at 20.08 on Monday. A jump in the volatility index indicates a significant increase in investors’ risk perception.
Meanwhile, Indian equities are also fast losing foreign money support. Foreign liquidity could be under threat as the US Federal Reserve gears up to taper bond purchases faster than anticipated. Foreign institutional investors (FIIs) have been consistently dumping Indian shares for the past few months amid concerns of steep valuations and the spread of the Omicron variant.
India has lost $3.4 billion of FII money in equities since October, indicating that markets may not continue to see robust liquidity flows. In addition, the looming threat of Omicron is also threatening the equities rally amid a sustained recovery of India’s domestic economy. FIIs sold Indian equities worth $2.27 billion in October, $756 million in November and $368 million in December.
According to Morgan Stanley, India and Indonesia are most at risk if US 10-year real rates rise sharply in a short span.
“We believe that policymakers in Asia will be able to normalize policy gradually, contingent on the pace of recovery, inflation dynamics, and the implications of the Omicron variant, rather than on the Fed policy path. The risk is that if and when US 10-year real rates rise sharply in a short span, this would create volatility in Asia’s financial conditions, though we believe that the eventual impact would be more muted than in 2013. If this risk scenario pans out, we see India and Indonesia as the more exposed economies,” it said in a note on 5 December.
Never miss a story! Stay connected and informed with Mint.
our App Now!!