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Stocks plunge as new COVID-19 strain in the UK worries investors

Investors in India may have also booked profits following recent gains

stock-trading-bse-reuters [File] Representational image | Reuters

The BSE Sensex and NSE Nifty50 indices plunged three per cent on Monday, wiping off more than Rs 7 trillion in market cap, as worries rose over a new fast-spreading COVID-19 strain in the UK that has prompted the British government to announce a tougher lockdown and several countries, including India, suspending flights to the country.

The BSE Sensex closed down 1,407 points at 45,553.96 points and the Nifty50 ended 432 points lower at 13,328.40. In other markets, the FTSE100 in London, Germany’s DAX Index and France’s CAC40 were trading lower by 2 per cent or more. The Madrid General index plunged 3.5 per cent.

India’s equity markets had seen a sharp uptick in recent weeks and the Sensex hit a fresh life high of 47,055.69 points in the morning session. But towards the afternoon, as the European stock markets opened sharply lower, investors in India also pressed the sell button, leading to across the board selling.

“The new variant of the coronavirus in the UK spooked markets as we witnessed intense selling throughout afternoon trade. While the street was bracing for a correction this week after a sharp up move, the sheer velocity of the fall across broader markets took the bulls by surprise,” said S. Ranganathan, head of research at LKP Securities.

All the stocks in the 30-share Sensex ended in the red on Monday. ONGC was the biggest loser, plunging 9.2 per cent. As of Friday’s close, the stock had surged 21 per cent in December. Among other major losers, SBI, Mahindra and Mahindra and Indusind Bank tumbled over 6 per cent; Bharti Airtel, Sun Pharma, Bajaj Auto, ICICI Bank, Axis Bank, ITC and NTPC all slipped between 4-5 per cent.

The BSE Midcap and Smallcap indices tumbled over 4 per cent.

“Travel restrictions imposed by several countries to and from UK have added concerns of yet another lockdown. European markets witnessed further selling pressure as the UK and EU failed to reach a trade deal before the decided deadline,” said Vinod Nair, head of research at Geojit Financial Services.

While concerns of the new COVID-19 strains in the UK dented investor sentiment globally, investors in India may have also booked profits following recent gains, feel some analysts. Before Monday’s plunge, the Sensex had surged over 5 per cent this month.

“Indian markets were worst performer today, we believe profit booking could also be a key reason as domestic equities have outperformed global markets by a wide margin in recent months,” said Binod Modi, head of strategy at Reliance Securities.

COVID-19 cases have been surging across many countries in the last few weeks. In India, while the number of cases have topped one crore, the growth rate has slowed. Several economic indicators too have pointed to a faster recovery, from the recession. Data last week showed that advance corporate tax collections in the December quarter had surged to around Rs 1.1 trillion, which suggests third quarter earnings are also likely to be strong.

In this backdrop, Modi said Indian equities were likely to remain “buy on dips.” However, given the volatility and rich valuations, he advises investors picking up only quality stocks, with strong earnings visibility and corporate governance.

Geojit’s Nair also doesn’t expect a big correction going ahead, but rather a consolidation of around 7-10 per cent. He also feels a “buying on dips” strategy could be considered amid the fall in stocks.

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