Wealth creation in the stock market seems to be on a pause mode and the trend over the past month has been towards a market correction.
The BSE Sensex hit a new peak of 62,245 points on October 19, when the National Stock Exchange (NSE) benchmark Nifty also created a new record of 18,604. Since then, the indices have declined 8%, eroding almost Rs 16 lakh crore in investors’ wealth.
On Friday alone, the markets fell close to 3%, which Hemang Jani, head of equity strategy and senior group vice president of broking and distribution at Motilal Oswal Financial Services, linked to the “emergence of a new, highly mutated Covid-19 variant.”
Realty, metals, banks and automobiles declined the most; gains in the pharma sector provided a bit of reprieve.
Decline in investors’ wealth
The BSE Sensex had a market cap of Rs 2,74,69,606.93 crore when the markets closed on October 19. On Friday, the figure had declined to about Rs 2,58,30,168.59 crore.
The Sensex closed 1,688 points down and Nifty lost 510 points on Friday.
The fall from the all-time highs hasn’t spared any indices. The biggest drop has been in the BSE Metals index, which has fallen by 13.6 percent.
The BSE Energy index has plunged by about 10 percent. The BSE Bankex has tripped 8.2 percent, BSE Finance 7.37 percent, BSE FMCG 7.04 percent, BSE IT 6.68 percent, BSE Oil & Gas 6.1 percent, BSE Auto 6.01 percent an d BSE Realty 5.74 percent.
BSE Midcap and Smallcap are down 5.65 percent and 4.6 percent, respectively, during the same period.
Global factors
Investors have been wary of global factors that are adding uncertainty to the markets. The impending stimulus taper and interest rate hikes by the US Federal Reserve and other central banks are acting as major deterrents to more gains in the markets, bringing to the forefront concerns related to the reduction in liquidity.
Accelerating inflation across economies is adding fuel to the fire; central banks are struggling to figure out whether it will be prudent to tame inflation at the cost of economic growth by aggressively increasing interest rates from all- time lows.
Increases in crude oil and metal prices are adding to the inflationary trends, which may slow revival in demand needed for the economy to come out of the COVID-induced rut.
Rising new cases of COVID in major economies of Europe like Germany and Austria and the imposition of total lockdowns there have also dampened investor sentiment. More doubts are arising when the world will be finally free from the virus.
New Covid variant
A new vaccine-resistant variant of the virus was detected in countries like South Africa and Botswana on Thursday. Currently identified as B.1.1.529, the variant is a big concern because of its high number of mutations and rapid spread among young people in Gauteng, South Africa's most populous province.
The World Health Organization (WHO) has scheduled a special meeting on November 26 to discuss the plans to tackle the new variant.
The European Union announced a temporary ban on flights from South Africa.
“Thus there is fear of this new variant spreading to other countries which might again derail the global economy. Already there is uncertainty as to when the US Fed will start raising interest rates. So markets might continue to reel under pressure and would actively track COVID situation globally,” Motilal Oswal’s Jani added.
On Friday, Asian markets were also trading 1.5 percent – 2.5 percent below their levels on Thursday. The Nikkei had fallen about 2.5 percent and the Hang Seng was down more than more than 2 percent as well.
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