Domestic stock markets which were going strong and hitting new peaks on a daily basis till last week took a heavy pounding on Monday with the Sensex plummeting 1,407 points, or three per cent, as a fresh wave of lockdowns were imposed across Europe and as the new variant of coronavirus in the UK dampened sentiments across the world.
What led to the three per cent fall in stocks?
The new variant of the Coronavirus in the UK spooked markets and stocks witnessed intense selling throughout afternoon trade. “While the street was bracing for a correction this week after a sharp up move, the sheer velocity of the fall across broader markets took the bulls by surprise as practically none of the key indices constituents were in the green today,” said S Ranganathan, Head of Research at LKP Securities. The Sensex fell 1,407 points to 45,533.96, its biggest fall in seven months, and the NSE Nifty plunged 432 points to 13,328.40. All sectoral indices ended in the negative with PSU banks, media, metals realty, auto, banks and pharma indices leading the downtrend.
Travel restrictions imposed by several countries to and from the UK have added concerns of yet another lockdown. European market witnessed further selling pressure as the UK and EU failed to reach a trade deal before the decided deadline. Markets are worried about the economy taking a U-turn again if lockdown is imposed and businesses are shut to tackle the new variant.
Will the market fall further?
The market was already in an overbought position with huge foreign investment flows pushing up the Sensex to new peaks. The vulnerability of the market was high due to quick gains made in the ongoing rally leading to low margin of safety. If the new Covid variant spreads across the world, there is a possibility that the market will witness further declines. However, if countries are able to tackle the spread of the pandemic, the markets will bounce back in a few days. “We do not expect a big correction… but rather a consolidation in the short-term, of not more than 7 to 10 per cent in the main indices. Buying at dips can be considered as a strategy in the falling market,” said Vinod Nair, Head of Research at Geojit Financial services.