Selloff intensifies, Nifty skids below 17,000. Five factors that spooked markets today

Stock Market Selloff

Dalal Street went into the red on Friday as all sectors, except information technology, continued to bleed.

The Nifty50 index hit an intraday low of 17,008.30 points, and finally settled with 263.20 points or 1.53 percent loss at 16,985.20. The Sensex, on the other hand, plunged 889.40 points or 1.54 percent to close at 57,011.74.

Realty was the biggest loser among sectors, down 4 percent, followed by Bank, Auto, Financial Services, Metal, and Oil & Gas indices which remained major drags on December 17, down more than 2 percent each, on the NSE.

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On the Nifty 50, 45 out of the 50 stocks were trading with losses pulled back by losers like IndusInd Bank, Tata Motors, ONGC, Kotak Mahindra Bank, Reliance Industries, SBI, and HDFC. Out of the gainers, three belonged to the IT sector.

The Nifty IT index continued to hold on to gains, with the index up 1.35 percent.

Also read: Five large-cap funds that beat the Nifty 100 TRI over one and three-year periods

Broader markets were hit harder with the Nifty Midcap 100 down 2.4 percent and the Nifty Smallcap 250 down 2.28 percent.

After four sessions of losses, the benchmark indices had closed in the green on December 16, but the market could not hold on to those gains.

What could be the reason behind the downhill drive? Let’s take a look at the factors that weighed on the equity markets on Friday:

Weak Global Cues

Most Asian markets were in the red today as they factored in the implications of hawkish central banks and rising cases of Omicron variant of Corona virus.

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While Japan’s Nikkei 225 was down over 500 points or 1.79 percent, Hong Kong’s Hang Seng was down over 283 points or 1.2 percent.

Geopolitical tensions following the US sanctions on China over human rights issues also weighed on the benchmark indices in the republic, with the Shanghai Composite down nearly 40 points or over 1 percent.

Omicron Concerns

Surging cases of the Omicron Corona virus variant across several countries gave rise to fresh economic growth concerns as new curbs could hit activity and travel.

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In Denmark, South Africa and the UK, the number of new Omicron cases has been doubling every two days. In the US, the rapid spread of the Omicron variant has led some companies to pause plans to get workers back into offices.

Experts have said that the variant is spreading 70 percent faster than the previous variants, but the cases are not as severe as earlier variants.

In India, cases of Omicron variant rose to 83 after Karnataka, Delhi and Gujarat together reported 10 new cases.

Weak US Economic Data

Even though industrial output in November in the US saw strong growth, experts believed it was below estimates.

It reported growth of 0.5 percent against estimates of 0.7 percent. On a year-on-year basis, it grew 5.3 percent, and is the highest reading since September 2019.

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Unemployment claims rose more than expected last week. Initial filings for unemployment insurance for the week ended December 11 totalled 206,000, above the 195,000 Dow Jones estimate and a gain of 18,000 from the previous week’s upwardly revised 188,000.

Hawkish Central Bank Surprises

Equity markets in emerging nations seem to be digesting the hawkish stance coming in from several central banks, including the US Federal Reserve.

The Fed said in a policy statement on December 15 that it was greatly reducing its massive bond-buying programme, and doubling its taper to $30 billion per month.

Also read: Tech stocks buck the trend after Accenture reports strong Q1

The next day, the European Central Bank further cut its bond purchases, but vowed to continue its unprecedented monetary policy support for the euro zone economy into 2022.

Meanwhile, the United Kingdom's central bank became the first in a major advanced economy to raise interest rates since COVID hit.

Tightening of liquidity in developed markets would force investors to pull back money from emerging markets as developed markets become more attractive with narrowing interest differential.

Also read: World coal power demand to hit new high after China, India, US surge: IEA

Continued FII Selloff

FIIs continued to sell, as net outflow on December 16 in the cash market stood at Rs 1,468 crore, even as DIIs net purchased Rs 1,533 crore.

FIIs have sold over Rs 24,600 crore so far this month, the highest for any month this year.