Sensex correction: What is different this time - Omicron vs earlier Covid waves?
Premium- Both Sensex and Nifty are down 12% from record highs hit in October this year
Indian stock market indices Sensex and Nifty tanked about 2.5% each as concerns about risks from the rapid spread of the omicron coronavirus variant prompted selling in global equities ahead of year-end holidays. Both gauges entered technical corrections, now down about 12% from their record high closing levels in October.
The benchmark Sensex rose more than 20% in the first 10 months of this year, aided by the central bank’s efforts to pump funds into the economy and steady buying by millions of first-time investors. In recent weeks, brokerages including Goldman Sachs Group Inc. and Nomura Holdings Inc. have lowered their outlook for Indian equities, flagging pricey valuations.
Ravi Singhal, Vice Chairman at GCL Securities said, “This crash in Nifty and Sensex can be attributed to three major reasons — rising cases of Omicron, FIIs and FPIs fishing out money from the Indian equity market and rise in inflation (both domestically and globally). In first and second wave of Covid-19, liquidity and inflation concern was non-existent. But, in current selloff, there are rising cases of Covid along with liquidity crunch and inflation."
If cases, continue to rise further, he said, there can be some more surges in inflation due to dilution in supply-chain. "In that case, NSE Nifty may down up to 16,000 to 16,200 levels. However, there can be rebound expected from these lower levels and the rebound may lift NSE Nifty up to 17,200 to 17,500 levels," he added.
Foreign investors sold about ₹8,000 crore in Indian shares this month through December 16.
“All things seem to be coming together for Indian markets, from tax-loss harvesting by the foreign investors to global volatility and the impact of virus spread," said Vikas Gupta, a strategist at Omniscience Capital Advisors Pvt. He expects volatility to persist in Indian markets for next few weeks as fund managers look to reset portfolios and book profit ahead of the new year.
Parth Nyati, founder of Tradingo, said: “Indian equity markets are witnessing sharp correction on the back of rising worries of omicron, hawkish global central banks, and most importantly relentless selling by FIIs. We are seeing the first meaningful correction in the current bull run and this correction has completed more than 10% from highs. However, we are in a structural bull run where every correction is a great buying opportunity."
Technically, he added, "16700-16400 is the first strong demand zone where we can expect a strong bounce-back while 16200-16000 should be a worst-case scenario. On the upside, 17000 will be immediate resistance while 17250 will be a critical hurdle; above this, we can expect a massive short-covering rally. Our top sectors to bet on in ongoing correction are capital goods, infrastructure, real estate, telecom, wealth management, banking, and technologies."
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“The sell-off in today’s trade is one of the most significant selling pressures witnessed recently on Dalal Street. As long as headline inflation+omricon risks remain elevated, investors need to remain nimble footed as the economic recovery will probably be in a zig zag mode. The ongoing pessimism indicates that the recent dramatic crash is nowhere near over," says Prashant Tapse, Vice President (Research) at Mehta Equities Ltd.
“Nifty’s biggest support seen only at 15871-16000 zone with an interweek-perspective. Caution will continue to be the buzzword and any intraday/interweek strength near 16900-17000 zone will be an opportunity to lighten leveraged long positions," he added.
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