Home / Markets / Stock Markets /  Fear of covid second wave spooks markets

Mumbai: Rising covid cases, increasing risk of a second wave of the deadly virus in India and a cautious trade by global investors ahead of the US Federal Reserve meet outcome continued to weigh on markets. Markets fell most in over two weeks, ending lower for the fourth consecutive day amid high volatility.

The BSE Sensex slipped 562.34 points or 1.12% ending at 49,801.62. The Nifty dragged 189.15 points or 1.27%, before closing at 14,721.30. Sell-off in BSE Midcap and BSE Smallcap were sharper with both the indices losing over 2% each.

"Indian market remained in negative territory as investors traded cautiously ahead of the US Fed meeting coupled with a resurgence in covid cases. Global markets also displayed a weak opening as it awaits the final decision of the FOMC meeting today, which will decide the trend of the market in the short-term. On a consensus basis, an accommodative policy is expected by Fed, which will help the global market to stabilise," Vinod Nair, Head of Research, Geojit Financial Services.

The policy-setting Federal Open Market Committee (FOMC) led by chairman Jerome Powell convenes on 16-17 March, with a policy statement and fresh economic projections due to be released at the end of the meeting. Investors will be looking for signs of whether the US central bank’s outlook for the economy has changed due to the ongoing covid-19 vaccination program and other developments. The recent passage of President Joe Biden’s $1.9 trillion coronavirus relief package has some investors worried that America’s expansionary fiscal policy will stoke inflation.

“Outcome of Fed policy meeting will equally be important for domestic markets in the near term as this can potentially influence foreign institutional investors (FIIs) flows into equities and Indian currency. However, India continues to remain as the most preferred destination for investors on better growth prospects," Binod Modi, Head Strategy, Reliance Securities said. Modi feels that mounting concerns about higher inflation, bond yields and recent spike in new covid-19 cases in select states have weighed on investors’ sentiments.

Economists at Nomura believe that the second wave of covid-19 in India can lead to near-term growth concerns and delay market expectations on the timing of policy normalisation. “However, we expect only marginal negative growth effects, because government restrictions are less stringent, the goods sector continues to chug along and households and businesses have adjusted to the new normal," Sonal Varma and Aurodeep Nandi, economists, Nomura said in a note on 16 March.

Over the medium term, progress on vaccinations, stronger global growth and lagged effects of easier financial conditions are likely to will act as growth tailwind. They said growth recovery and policy normalisation to remain as themes over the second half of 2021.

In response to rising cases, states have re-introduced restriction measures. In Maharashtra (which accounts for close to 14% of the national GDP), the city of Nagpur entered a seven-day complete lockdown from 15 March.

Prime Minister Narendra Modi on Wednesday attended a virtual meeting with all chief ministers to discuss the worrying spike in coronavirus cases in several states. He said that quick and decisive steps need to be taken soon to stop an emerging second “peak" of covid-19 infections. Modi proposed micro-zoning of an area instead of imposing a general lockdown. He also directed states to focus on scaling up testing and contact tracing to curb the covid-19 spread.

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