Sensex crash over concern of new variant of coronavirus
Call it freaky Friday, Black Friday, doom Friday, or any Friday. This Friday did not go down well with Indian Equity investors. It was a bloodbath on Dalal Street. The Sensex crash has led investors to lose Rs 7 lakh crore of their wealth in a single day. The market was already correcting for the last few weeks after touching a record high.
This was the third-highest Sensex crash of the year. The Sensex declined 1,687.94 points to close at 57,107.15, and NSE Nifty plunged 509.80 points to 17,026.45.
Apart from the new corona variant, there are a few other concerns that are driving the Indian Indices like
1>Rising covid case in Europe and Lockdown in Europe.
The rising covid infections have already prompted countries like Austria and Slovakia to impose lockdowns. Countries like the Netherlands announced a partial lockdown, while Germany and Czechia have imposed restrictions for the unvaccinated. The European Commission has recommended that EU countries introduce an “emergency brake” on all travel from the region in response. The World Health Organization (WHO) has already called a meeting to discuss the new variant.
2> Fed Bond tapering and increase in interest rate.
The US federal reserve, the central bank of the USA, has been buying bonds and reducing interest rates to infuse more money into the market. More money in the market leads to rising inflation. The rising inflation is a cause of concern for the Fed, so it plans to taper(reduce) bond purchases and increase the interest rate. Bond tapering and rising interest rate will strengthen the dollar, prompting FPI, FII to exit from emerging markets like India. Over the last three trading sessions, FPIs have pulled out a net of Rs 14,700 crore from Indian equities, resulting in a sharp decline in indices.
What should investors do?
Many investors think of today’s crash and correction for the last few weeks as a blessing in disguise. The expensive valuations were a concern for domestic markets.ICICIDirect, in a research note this week, suggested that a correction was overdue. We should see it as healthy in the overall more significant uptrend.
An article in The Economics times suggests that a 5 percent correction is generally a good enough “dip,”. Investors should follow a “buy on dips” allocation strategy. An article in the Indian express talks the same tune; it says the pace of vaccinations in India is good, markets should hit fresh highs as we advance. It also talks about using these dips as investment entry points. Few investors are sensing negative sentiments in the market. They are calling for lightening the long position and the cautious wait and watch approach.
