Markets in a tailspin as Omicron rattles investors’ nerves

BSE Sensex slipped 949.32 or 1.65% at 56,747.14 and Nifty fell 284.45 points or 1.65% to end at 16,912.25.

Markets in other Asia-Pacific regions were mostly under pressure. Hong Kong’s Hang Seng Index lost 1.76%. The Shanghai Composite in China was down 0.5%, Japan’s Nikkei 225 fell 0.36%, while South Korea’s Kospi was up 0.17%.

“The ambiguity around Omicron ahead of the crucial policy review of the Reserve Bank of India on Wednesday continued to dampen the morale of domestic investors. The domestic market is expected to remain volatile as developments will be dominated by the new volumes and policy decisions of RBI and US Federal Reserve in the near term. The market expects the RBI to stick to the accommodative policy in view of the short-term uncertainties. However, a turnaround is expected during H1 2022, which is being factored by the Indian market, while global equities are trading mixed,” said Vinod Nair, Head of Research, Geojit Financial Services.

The Omicron variant of Kovid 19 is spreading rapidly in India. In the past week, the number of people infected with the new version of the coronavirus rose to 21 as of Sunday.

Adding to the investor cautious approach is the RBI policy review, which is widely expected to hold interest rates and delay policy normalization, according to a Mint poll of bankers and economists, as the Omicron version of the novel coronavirus dents India’s economic recovery. creates risk.

Anxiety and panic among investors has increased as volatility in India or India VIX jumped nearly 9% to end at 20.08 on Monday. Hot VIX indicates that investors are broadly expecting to see some further correction in the market.

Meanwhile, Indian stock markets are also rapidly losing forex support. Foreign liquidity in Indian stocks is expected to be at risk as the US Federal Reserve gears up to reduce bond purchases faster than expected. Foreign institutional investors (FIIs) have been continuously dumping Indian stocks for the past few months amid concerns over bullish valuations and the spread of the Omicron variant of Covid.

India has lost $3.4 billion of FII money in equities since October, a sign that strong liquidity inflows into the markets may not continue. Omicron’s growing threat is also threatening an equity rally amid continued recovery in India’s domestic economy. In October, FIIs sold Indian equities worth $2.27 billion, up from $756 million and $368 million in November and December.

According to Morgan Stanley India and Indonesia are at risk if and when US 10-year real rates rise sharply over a short period of time which will create instability in financial conditions in Asia.

“We believe that policymakers in Asia will be able to gradually normalize policy, depending on the pace of recovery, inflation dynamics and the impact of the Omicron variant, rather than the Fed policy path. The risk is that if more When US 10-year real rates rise sharply in the short term, it will create volatility in financial conditions in Asia, although we believe the eventual impact will be more muted than in 2013. If this risk scenario were to be eliminated. We see India and Indonesia as more exposed economies,” it said in a note on December 5.