Sensex snaps rally, tanks over 700 Pts: 5 factors that pulled markets down

The health ministry has confirmed that two people in Karnataka have been tested positive for the new COVID variant Omicron. They have also said that people in contact with both the patients have been traced and are tested for the Omicron virus. India has become the 30th country in the world to detect the newest strain.

“Several reports suggest that the Omicron virus is more contagious than earlier detected COVID virus strains. As of now, it looks like the situation is under control for the Omicron virus in India but if it spreads, it will impact the market,” said Yash Gupta, Equity Research Analyst at Angel One.

India reported 9,216 crore fresh COVID cases in the last 24 hours, said a home ministry update at 8am on Friday. The increase in vaccination across the country seems to be helping control the spread of the virus.

2. Market Movers and Sectoral Performance

Index heavyweight Reliance Industries was the second biggest loser in the BSE Sensex, falling 3 percent. ITC, HDFC and HDFC Bank were also under pressure, declining 0.8-1.66 percent.

About 26 stocks corrected in the BSE Sensex against 4 rising stocks.

All major sectors are also in a bear trap with the Financial services and FMCG being the prominent losers with 1 percent drop in each. Profit-booking could be one of the major reasons for Friday’s correction.

Nifty Auto, Bank, IT and Pharma indices were also down 0.8 percent each.

3. Star Health IPO Disappoints

The failure of Rakesh Jhunjhunwala-backed Star Health and Allied Insurance Company to get full subscription could also be one of reasons for weak sentiment in the market.

The Rs 7,249-crore public issue was subscribed only 79 percent, even as the company extended timing by a couple of hours on December 2. The reserved portion of retail investors and qualified institutional buyers was fully subscribed but non-institutional investors and employees' book remained undersubscribed. 4. Caution Ahead of RBI Policy

Investors seem to be cautious ahead of the Monetary Policy Committee meeting next week. Experts largely feel there could be a reduction in the gap between reverse repo and repo rate, though the RBI could continue with accommodative stance, while keeping a close watch on new COVID variant.

“As the cobwebs being to clear w.r.t. policy making front, central bankers across the world are grappling with the debut of the Omicron variant of COVID virus. The path to normalisation has begun across the world, including India, and is less likely to stop for now,” said Lakshmi Iyer, CIO for Debt and Head of Products, at Kotak Mahindra Asset Management Company.

“We expect a reasonably high chance of 15/20bps hike in reverse repo rate – a start to reduce the gap between repo and reverse repo rates,” she said. “The policy stance may remain status quo and hinge on incremental developments in the near term. We expect VRRR (variable reverse repo rate) as a tool to normalise liquidity to continue to gain momentum.”

5. Technical View

The Nifty50 saw formation of a sizeable bearish candle on the daily charts after a bullish candle formation in the previous session, indicating that the market is expected to be rangebound and volatile.

“The market witnessed some correction after a failed attempt to sustain the Nifty50 Index level of 17,400. Research suggests that sustaining above 17,200 will be an important level for the market to stay positive in the short term,” said Vijay Dhanotiya, Lead of Technical Research at CapitalVia Global Research.

“If the market is able to sustain the level of 17,200, it can witness a positive momentum leading to the higher levels near 17,600. The momentum indicators like RSI and MACD are showing positive momentum in the market,” he added.