While the likely impact of the new variant isn’t clear, investors are concerned about its spread and the prospect of renewed lockdowns across the globe. Many countries are tightening travel after the discovery of the new Covid-19 variant in South Africa earlier this week. Reports suggested that the new variant could be more transmissible.
The Sensex declined 1,688 points or 2.9% to close at 57,107.15, having briefly slipped below the 57,000 mark during the day. The Nifty also briefly got knocked below the 17,000 mark before ending at 17,014.80, down 521.45 points or 3% from the previous close. Elsewhere in Asia, indices fell 0.6-2.7%. The carnage extended to Europe and the US. Markets in France, the UK and Germany crashed 3.6-4.8% while Dow slumped over 1,000 points in early trade .
The Nifty’s fall below a critical technical support of 17,200 has opened up the probability of the index falling another 2-4%, said analysts.
“The new Covid variant is a source of high concern but we will have to wait for its exact impact. The market was running a little ahead of its fundamentals,” said Nilesh Shah, managing director, Kotak Mahindra Asset Management Co. “It is likely that the market will remain in a correction-to-consolidation mode for some time.”
India’s volatility gauge VIX, which measures market’s perception of risk in the near term, shot up by 25% to 20.80. Foreign portfolio investors (FPIs) offloaded shares worth Rs 5,785.83 crore while domestic institutional investors (DIIs) bought shares worth Rs 2,294.11 crore on Friday.
The loss of over 4% this week pushed the benchmark indices to their worst weekly performance since January. Indices have dropped 8% from their record highs in October with Covid fears accelerating the decline.
ET BureauEurope’s biggest economy, Germany, registered the highest daily increase in new Covid cases since the start of the outbreak in the past 24 hours. The death toll in the country crossed 100,000. Other countries such as the Czech Republic, Portugal, Slovakia and Belgium among others have imposed strict restrictions or are in the process of bringing in tougher rules to prevent the spread of the virus.
“It is still early days, not very much is known about it and, on the good side, it is still very limited at the moment in terms of spread,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies. “We need to see if the current vaccines work against it. Indices could fall another couple of percentage points.”
Earlier this month, the World Health Organization said the current pace of transmission across the 53 countries of the WHO European Region was of “grave concern.”
The fresh concerns over Covid have erupted at a time when investors are already worried about the impact of the impending withdrawal of the bond-buying programme by the US Federal Reserve. Wall Street is mounting bets that the American central bank will accelerate the pace of stimulus tapering and raise interest rates sooner to contain rising inflation, resulting in the dollar strengthening and foreign investors pulling money out of riskier emerging markets, including India.
“The correction started on US taper tantrum and profit booking by FPIs due to massive outperformance by India over other peers and got accelerated by Covid variant concern,” said Shah.
