Indices tumble, rupee slides as Omicron cases rise

Nifty, equities, businesses, stocks, FPIs, rupee

Mumbai: Indian equities slumped and the rupee extended its slide on Monday as sentiment took a further beating after the country’s tally of people infected by the Omicron variant of Covid-19 increased over the weekend. Investors worry that the spread of infections may prompt states to impose restrictions on movement once again as businesses limp back to normalcy.

The BSE Sensex dropped 949.32 points, or 1.65%, to close at 56,747.14. The NSE Nifty declined 284.45 points, or 1.65%, to close at 16,912.25.

Indian stocks were among the biggest laggards in Asia on Monday.

Foreign portfolio investors (FPIs) sold shares worth a net ₹3,361.28 crore on Monday, causing the rupee to decline 30 paise to 75.42 against the dollar. The Indian currency had ended at 75.12 on Friday.

“Markets are being weighed down by a combination of Omicron concerns and foreign selling,” said Abakkus Asset Manager founder Sunil Singhania. “This was bound to happen because the market was looking overheated.”

Nifty, equities, businesses, stocks, FPIs, rupee

Fear Gauge Rises 8.8%

Both indices have fallen almost 3% in the past two days with the Nifty just above a crucial support level of around 16,800. Analysts said a further breach would open up the likelihood of an immediate drop of another 2-3%.

Traders are seeing higher risks to the market in the near term, reflected in the 8.8% spike in the fear gauge, the Volatility Index or VIX, on Monday to 20.08. Worries about a third Covid wave across the country in the wake of the rise in infections are the latest cause of risk aversion in the market. India had detected 21 Omicron cases by Monday afternoon.

Nomura said overall infections were low, mobility had risen above pre-pandemic levels in November and about 35% of the population was fully vaccinated.

“Experience suggests that virus waves have a negative impact on growth, but also lead to higher inflation, due to disruptions to supply chains,” the brokerage said in a client note. “Enhanced border restrictions and testing may also cause increased public caution, weighing on services.”

Concerns over Omicron spreading have added to existing worries about the almost-unabated foreign institutional selling, sparked by expectations of the US Federal Reserve tightening its ultra-accommodative monetary policy sooner than anticipated. The hawkish tilt in the American central bank’s commentary amid growing inflationary pressures has led to a rally in the dollar and a rise in US bond yields – bad news for emerging markets. The selling by overseas investors on Monday took their tally for December so far to about Rs 9,374 crore. They withdrew Rs 33,281 crore in November and Rs 18,202 crore in October.

“We are seeing sectors such as banking and IT, where FPI exposure is higher, taking a hit,” said Singhania, who expects the market to consolidate. “I don’t think this is the time to be bearish because broadly speaking the economy is doing well.”

As Omicron spreads worldwide, investors are assessing the reaction of central banks to growing infections amid accelerating inflation.

“Major central banks are sending differing messages as they weigh Omicron risks amid positive data on activity, with the Fed pivoting to a hawkish tone and the BoE (Bank of England) poised to delay tightening,” Barclays’s analysts including Christian Keller wrote in a recent client note. “With the extent of the Omicron threat still unclear, risks are tilting toward slower growth and more prolonged inflation.”

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