The Indian equities markets benchmark indices Sensex and Nifty have slumped more than 11 per cent from their peaks. Technically the markets have now entered the correction zone. This has happened for the first time since March 2020.
The markets witnessed panic selling on Monday. The key indices slumped over 3 per cent leaving equity investors poorer by a staggering around Rs 10 lakh crore.
The benchmark Sensex dipped to a low of 55,132.68 points on Monday trade, which is 11.42 per cent down from its high of 62245.43 points reached on October 19, 2021. More than 10 per cent of decline from the peak is referred to as correction.
What is causing this massive selloff at the Dalal Street? There are multiple factors. Exploding COVID cases due to the new strain Omicron, rising inflation and sustained selling by the Foreign Institutional Investors (FIIs) are among the key factors driving the markets down.
The biggest trigger has come from the renewed COVID-19 pandemic concerns. COVID-19 cases have started rising sharply across the world due to the new strain Omicron. The Netherlands has imposed lockdowns. Several other countries are also putting restrictions and may impose lockdowns ahead of the Christmas and New Year holidays. The UK and other European countries are among the worst affected by Omicron variant. There is a growing fear that the restrictions and lockdowns may derail the global economic recovery.
The cases of Omicron, the new strain of Coronavirus, have been rising in India also. New cases were reported in several states on Monday taking the nationwide tally to 170. Maharashtra is the worst affected with 54 Omicron cases. Delhi is the second-worst hit with 28 cases of the new COVID variant.
The broader Nifty 50 of the National Stock Exchange has also entered the correction zone with more than 10 per cent decline from its peak. The Nifty 50 touched a low of 16,410.20 points on Monday, which is 11.79 per cent lower from its all-time high of 18,604.45 points achieved on October 19, 2021.
Equity investors' wealth has been eroded by 22.12 lakh crore from their peak touched on October 19. Market capitalisation of BSE listed companies dropped to Rs.252,57,581.05 crore on December 20 from Rs.274,69,606.93 crore recorded on October 19, registering a decline of Rs.22,12,025.88 crore.
The recent slump in the market has been triggered by heavy selling by Foreign Institutional Investors (FIIs). The FIIs have been selling in the Indian markets constantly since October. The rise in dollar prices and signals by the US Federal Reserves to hike interest rates are some of the important reasons why FIIs are shifting money from emerging markets like India to developed markets like the US.
The Reserve Bank of India (RBI) is under increasing pressure to hike policy rates after the recent increase in inflation.
Wholesale Price Index (WPI) based inflation rose to 14.23 per cent in November, the highest level in 12 years due to a sharp jump in the prices of oil, basic metals, and food products, as per the official data released last week.
Consumer Price Index-based inflation rose to 4.91 per cent in November. Though the headline inflation remains in the RBI's target range of 2-6 per cent, the rising trend has put increasing pressure on the central bank to hike policy rates.
In the bi-monthly policy review announced on December 8, the RBI kept key policy rates unchanged for the ninth consecutive time. The repo rate remains unchanged at 4 per cent and reverse repo rate at 3.35 per cent.
If the central bank decides to hike these rates it could negatively impact the economic growth which will have pressure on the companies' earnings and profits.
( With inputs from ANI )
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