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MUMBAI : Stocks remained under pressure on Friday after a slew of central bank monetary policy meetings around the world pointed to worries over twin risks: a spike in global inflation threatening economic recovery and the swift spread of the new covid-19 variant.

In their latest policy meetings, the US Federal Reserve took a hawkish turn while the Bank of England raised interest rates on Thursday. This could impact the flow of liquidity supporting equities, especially to emerging markets.

The BSE Sensex slipped 889.40 points, or 1.54%, to 57,011.74, and the Nifty fell 263.20 points, or 1.53%, to 16,985.20.

“Emergence of the new Omicron strain, inflation concerns and hawkish turn of global central bankers have led to an increase in volatility in equity markets worldwide, including India. With inflation increasing in countries across the world, all eyes are on central bankers and the pace of liquidity normalization adopted by them. India has started seeing new cases of Omicron, but the real impact would be known over the next month or so as was seen in previous waves of covid-19. The pace of vaccinations in India continued to improve steadily," said Shibani Kurian, senior executive vice-president and head of equity research, Kotak Mahindra Asset Management Co.

According to her, the market direction would be largely determined by any third wave of covid, flows from domestic investors and FIIs, the demand trend over the next few months, and movement in input cost inflation.

Markets in other Asia Pacific countries were mostly lower. Japan’s Nikkei 225 fell 1.79%, the Shanghai composite in China slipped 1.16%, and in Hong Kong, the Hang Seng index was down 1.14%.

According to Joseph Thomas, head of research, Emkay Wealth Management, the main trigger was the tightening of liquidity by the Fed and renewed indications of an interest rate hike by the Fed in 2022. “The flight of funds, which had reached the shores of emerging markets, as the quantitative easing began with the outbreak of the pandemic, is gradually finding their way back to where it came from, a feature with the earlier tapering too. This trend may likely accelerate further before it could moderate, with the excitement over the Union Budget taking over," he said.

The India volatility index, or fear index, spiked 2.78% on Friday to close at 16.34, indicating a rise in anxiety and nervousness among investors.

“Apart from the policy tightening, a sharp rise in covid cases globally has renewed participants’ worries, and we feel it may aggravate further in the absence of any major positive," said Ajit Mishra, vice-president of research at Religare Broking Ltd.

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