Sensex cracks 1,400 points, Nifty falls below 13,350; 4 factors that triggered bloodbath

The new variant of the novel coronavirus that has shut down most of the UK has spooked markets. England’s Chief Medical Officer Chris Whitty said the new variant spreads faster.

Indian equities witnessed a sharp selloff in afternoon trade on December 21, with most sectors reeling under strong pressure.

Equity barometer Sensex fell 2,038 points, while the Nifty touched 13,131.45 on the downside. Volatility index India VIX jumped 24.52 percent. Among the sectors, Nifty PSU bank cracked around 7 percent, while NIfty Media fell over 6 percent. Nifty Auto, Bank and Metal indices fell up to 5 percent.

Sensex closed at 45,553.96, down 1,407 points, or 3 percent, and the Nifty settled at 13,328.40, down 432 points, or 3.14 percent.

BSE midcap and Smallcap indices cracked 4.14 percent and 4.57 percent, respectively.

"A new and faster-transmitting strain of the virus in the UK is an area of concern. This has led to further restrictions on travel and economic activity. Acceleration in the number of cases in the US and poor economic data are other dampeners. High valuation continues to be a concern in India but the power of FII-driven liquidity is overwhelming all negative news. Investors should exercise caution," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Here are the top 4 factors that led to a sharp fall in the market:

Renewed COVID fears

A new variant of the novel coronavirus has been identified in the United Kingdom. England’s Chief Medical Officer Chris Whitty said on December 19 that the new variant of the coronavirus, which causes COVID-19, can spread faster.

Scientists are working to confirm if the mutation leads to a higher mortality rate or cause more severe illnesses.

As per media reports, Prime Minister Boris Johnson was to chair a crisis meeting on December 21 as a growing number of countries blocked flights from Britain over a new highly infectious coronavirus strain the UK said was "out of control".

Profit-booking at peak valuations

Analysts pointed out that the market is witnessing profit-booking as the valuation is near-record high.

As COVID remains an overhang and the economic outlook is still uncertain despite signs of improvement, analysts advise profit-booking at regular intervals.

Global brokerage firm Nomura highlighted that the high-frequency data indicating a revival is driven by pent-up demand and inventory stocks that are likely to subside over time.

Consensus earnings growth expectations are high and market valuations are at the peak. Therefore, we are cautious and selective on Indian equities, Nomura said.

Weak global cues

Most Asian stock markets fell on December 21 amid concerns over the new coronavirus strain that shut down much of the UK.

As per Reuters, MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.2 percent after hitting a string of record peaks last week. Japan’s Nikkei reversed early gains to be down 0.4 percent, off its highest since April 1991.

Technicals

Analysts are of the view that the Nifty has a resistance in the range of 13,850-13,900 and unless the market trades above that level decisively, profit-booking will be seen.

"The Nifty has an immediate hurdle around 13,850-13,900 zone, while 13,600 would act as critical support in case of any profit-taking," said Ajit Mishra, VP - Research, Religare Broking.

"If the market stays above 13,700, then it should be head to 14,000. Strong support lies at the 13,500-13,600 levels and as long as that holds, the trend of the index remains bullish and traders can utilise any dip to accumulate long positions," said Manish Hathiramani, Proprietary Index Trader and Technical Analyst, Deen Dayal Investments.

Source- Moneycontrol.com