Omicron, inflation concerns weigh down Indian stock markets
11:01, 17 December 2021
Indian stock markets fell today, rounding off a weekly decline as investors across the board chose to liquidate positions on the protracted Covid worries and the hawkish stand taken by central banks across the globe to curb inflationary pressures.
The bellwether Bombay Stock Exchange’s 30-share Sensitive index ended 1.54% lower at 57,011.7 points from its previous close. The most-traded National Stock Exchange’s (NSE) Nifty50 index weakened 1.53% to 16,985.2 points. The indices hit the lowest level since 6 December.
“Weak global sentiments inundated domestic indices as markets are digesting the hawkish stance of major international central banks amid surging omicron cases,” said Vinod Nair, head of research, Geojit Financial Services.
“While the European Central Bank took a small step in rolling back the crisis-era stimulus although holding down borrowing costs next year, the Bank of England surprised the markets by raising interest rates for the first time since the onset of the pandemic,” he added.
Continued selling by foreign investors selling also created tension among domestic investors, said Nair.
Policy stance
Following the US central bank’s indication earlier this week to end bond-buying and prepare for rate hikes, the European Central Bank said it may follow suit and reduce the liquidity abundance to counter rising inflation.
The ECB indicated will be ending its emergency purchase plan by March 2022 and would maintain its asset purchase programme. President Christine Lagarde said that the adjustment to the quantitative easing program was to avoid a “brutal transition”, for financial markets as the European economy continues to recover from the Covid-19 pandemic.
On Thursday, the Bank of England raised its lending rates, becoming the first central bank to do so since the pandemic started.
In India, concerns are mounting as retail inflation accelerated and reached a three-month high in November. This remains the market undertone as investors are aware that faster inflation could erode the value of equity assets.
Spooked by virus variant
It is a nervous market out there with sentiments across the globe affected by the rise in Omicron cases, the latest variant of the Covid-19 virus. Indian has already reported more than 100 cases of the new variant.
US President Joe Biden warned Thursday of a “winter of severe illness and death” for those unvaccinated against Covid-19, as the G-7 called the Omicron variant the biggest threat to global public health. That was after the UK reported over 88,000 Covid-19 infections, a second consecutive record daily number.
Reports across the world suggest that scientists remain uncertain how dangerous the highly mutated variant is, but early data suggests it can be more resistant to vaccines and is more transmissible than the Delta variant.
Shibani Kurian, head of equity research at Kotak Mahindra Asset Management Company said that Omicron, inflation concerns and the hawkish turn of global central bankers led to an increase in volatility in equity markets worldwide including India.
“With inflation increasing in countries across the world, all eyes are on central bankers and the pace of liquidity normalisation adopted by them,” she added. The real impact would play out only in the next month, Kurian said.
IT bucks trend
All but one of the 11 sectoral indices ended in the negative zone with the Nifty Media index falling as much as 4.7% and the Nifty Realty index weakening 3.9%. The Nifty IT index was able to buck the trend with a 1.35% gain. The advance-decline share ratio –the number of advancing shares divided by the number of declining shares – on the NSE was 435-1,605 today.
“Earnings beat together with revised growth guidance by Accenture however helped the IT Index gain almost 2% during the afternoon on a day when almost every other sectoral index ended deeply in the red. The Midcap Index and Small-cap indices were pounded as investors stayed back today amidst a hawkish US Fed stance and rising domestic inflation data,” said Ranganathan, head of research at LKP Securities.
In news on stocks today, India’s second-largest telecommunication services provider Bharti Airtel said that it paid INR155.19bn ($2bn) to the government as prepayment of its entire deferred liabilities pertaining to spectrum acquired in an auction of the year 2014.
The company had acquired a 128.4MHz spectrum (including Telenor spectrum) for INR190.5bn. The stock, however, ended 2.19% lower at INR666.45.