Nifty breaks 17,000, Sensex falls 1,000 pts; 5 factors that dragged markets lower

The market remained under pressure for the second consecutive session, with the Sensex losing 1,000 points despite positive European cues on December 6. Investors and traders continue to monitor developments related to the new Covid variant Omicron, and seem to have turned cautious ahead of the outcome of the Monetary Policy Committee meeting, which began today.

The Nifty50 breached the 17,000 mark, falling 284 points or 1.65 percent to 16,912, while the BSE Sensex tanked 949 points or 1.65 percent to 56,747.

Here are the five factors that drove the market lower:

Omicron

Omicron, the new Covid variant first detected in South Africa, created a lot of volatility in the global markets including India, which saw an addition of 17 Omicron patients in a single day on Sunday, taking the total number of cases to 21 now.

Most of the cases belong to people who either returned from South Africa or came in contact with people infected with Omicron. The cases were reported in Karnataka, Maharashtra, Delhi, Rajasthan among others. However, experts said symptoms are largely similar to previous variants of Covid-19.

FII Selling

FIIs retained their finger on the sell button amid uncertainty around Omicron, overvaluation, and likely faster Fed tapering amid rising inflation. However, DIIs managed to offset the FII selling pressure to a major extent.

Foreign institutional investors have net sold shares worth Rs 15,800 crore, however, domestic institutional investors net bought Rs 16,450 crore worth of shares during the week.

FIIs have net sold shares worth Rs 39,901 crore and Rs 25,572 crore in November and October, respectively.

Also read: Nifty can correct 1,000 points till Budget, says Sandeep Bhatia of Macquarie Group

Caution Ahead of RBI Policy

Investors and traders seem to be cautious ahead of the outcome of the Monetary Policy Committee meeting, which began today and will continue till Wednesday. Experts largely feel the RBI is expected to continue its accommodative stance with no rate hike, but could increase the gap between repo and reverse repo rate by increasing the reverse repo rate amid Omicron uncertainty and a hawkish Fed.

"The upcoming policy meet on December 8th is going to be a tough one with choices ranging from maintaining status quo or to signal the beginning of the withdrawal of the extraordinary easy monetary policy," said Sandeep Bagla, CEO at TRUST Mutual Fund.

He further said it could be a non-event - with no change in stance and no change in rates. "There is a renewed threat to global growth due to Omicron variant and the output gap in India still appears to be wide open, justifying easy monetary policy."

"On the other hand, core inflation is high, the US Fed has turned somewhat hawkish; it would be prudent to indicate to markets how and when the RBI is going to come out of the extraordinary liquidity easy rates. A hike in reverse repo from 3.35 percent to 3.60 percent cannot be ruled out," said Bagla.

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Sectoral Performance

All sectoral indices were caught in a bear trap with IT being the biggest loser, down 2.7 percent. Nifty Bank, Auto, Financial Services, FMCG, Metal and Pharma indices were down 1-2 percent.

The broader markets were under pressure with the Nifty Midcap 100 and Smallcap 100 indices declining 1.4 percent and 1.1 percent, respectively.

Technical View

Experts believe the market has been rangebound after the recent correction, and this trend is expected to continue. Nifty is continuing its corrections after a minor pullback, where it has again slipped below its 100-DMA, said Santosh Meena, Head of Research at Swastika Investmart.

"The selling can be attributed to rising cases of Omicron variant in India along with other countries, and FIIs are also continuing to hold their hand on the sell button," Meena said.

He said that the sharp selloff in tech stocks in the US on Friday was replicated in the Indian market.

"16,800-16,700 is a critical support zone for the Nifty where we can expect a bounceback. Below this zone, 16,400 will be the next important support level," he said.

On the upside, he expects 17,000 to act as an immediate intraday resistance for December 7, while 100-DMA of 17,181 will be the next hurdle. "Above 100-DMA, we can expect a short covering move towards the 17,300-17,350 zone," he said.

The volatility also spiked today, with the India VIX, which measures the expected volatility in the market, rising by 8 percent to 20 levels.

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