The market succumbed to major selling pressure as bears had full control over Dalal Street on December 17, which turned out to be a Black Friday for Indian equities. Weak global cues after hawkish stance taken by the major global central banks amid rising Omicron (the new variant of Covid-19) cases and surprise rate hike by the Bank of England for the first time since the beginning of pandemic dampened market sentiment.
Overall, the market has been rangebound and weak for a couple of months now, especially since hitting record-high levels in October 2021. Overvaluation concerns, the downgrade of Indian equities by global brokerages, fears over Omicron surge, beginning of bond tapering by Federal Reserve, rising expectations of rate hikes in the US, consistent FII selling, and withdrawal of farm laws by the government are some of the key reasons that spoiled the mood of the market.
The Nifty50 hit a record high of 18,604 on October 19, and since then corrected nearly 10 percent to hit a recent low of 16,782.
Last week, the index recouped losses and jumped 3.5 percent to rally up to 17,516; but this week the mood turned in favour of bears, dragging the index below the crucial 17,000 mark, down 3 percent during the current week.
On Friday, the Nifty50 shed 263.20 points or 1.53 percent to close at 16,985.20, and the BSE Sensex was down 889.40 points or 1.54 percent at 57,011.74 as selling across sectors, barring IT.
"The main trigger for the southward movement in the indexes is the tightening of liquidity by the Fed after the latest FOMC meeting, and also renewed indications of rate action in 2022," said Joseph Thomas, Head of Research at Emkay Wealth Management.
He further said the flight of funds, which had reached the shores of emerging markets as the quantitative easing began with the outbreak of the pandemic, was gradually finding its way back to where it came from, a feature with the earlier tapering too. "This trend may likely accelerate further before it could moderate, with the excitement over the Union Budget takes over."
Investors' wealth eroded by Rs 8.3 lakh crore during the week as the BSE market capitalisation fell to Rs 259.4 lakh crore on December 17, from Rs 267.68 lakh crore on December 10, 2021.
The wealth erosion in the last two months, or especially after record high levels was Rs 15.3 lakh crore (trillion). The highest BSE market capitalisation was Rs 274.69 lakh crore on December 18.
Experts expect the volatility and rangebound trend with a negative bias to continue in the coming days or at least till the December earnings season that will begin in January 2022.
"Globally, markets saw sell-off as central banks are tightening their monetary policy. Uncertainties over the impact of the fast-spreading Omicron variant are likely to hit economies. Geopolitical tensions between China and the US flared again, thus adding negative market sentiments," said Siddhartha Khemka, Head - Retail Research at Motilal Oswal Financial Services.
He further said the overall market remained in a tight range with a bearish undertone as selling pressure is intact at higher levels.
Negative global cues, continued FII selling, absence of any positive trigger and increasing cases of Omicron are likely to continue putting pressure on the market, he feels. Khemka advised traders to maintain their negative bias in the market for the next few days.
Shibani Kurian, Senior EVP & Head- Equity Research at Kotak Mahindra Asset Management Company also expects that, even while the structural drivers of the Indian equity markets are intact over the medium to long term, in the near term given the current valuations (both absolute and relative), Indian equity markets could witness some degree of volatility.
"Market direction would be largely determined by 1) any third wave of COVID from new variant 2) flows from domestic investors as well as FIIs 3) demand trend over next few months and 4) movement in input cost inflation. The RBI’s monetary policy and Union Budget (to be presented in February) would be some of the other key events to watch out for," said Kurian.
FIIs have net sold nearly Rs 26,700 crore worth of shares so far in December, in addition to the outflow of Rs 65,500 crore in the previous two months.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.