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Markets fell worldwide on Friday as fresh lockdowns in France and Germany, and the re-emergence of covid-19 in China overshadowed US President-elect Joe Biden’s $1.9 trillion American Rescue Plan.

The BSE Sensex fell 549.49 points, or 1.11%, to 49,034.67, while the Nifty shed 161.90 points to 14,433.70.

This is the market’s sharpest single-day decline since 21 December.

Shares in other Asia-Pacific regions were mostly lower. South Korea’s Kospi fell the most at 2.03%, while Japan’s Nikkei shed 0.62% and the Topix index 0.89%.

Most analysts feel that the markets will remain volatile till the Union Budget, which is scheduled to be presented on 1 February
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Most analysts feel that the markets will remain volatile till the Union Budget, which is scheduled to be presented on 1 February

Indian equities took the heat of profit-booking as well since benchmark indices have been hitting record highs in the past few weeks, analysts said.

“Indian markets ended lower on the back of profit-booking amid weak global cues. Asian shares tripped lower reversing earlier gains as rising covid-19 cases in China reinforced investor concerns over the prospects of a global economic recovery," said Deepak Jasani, head, retail research, HDFC Securities.

“European stock markets also traded lower with investors weighing increased covid-related restrictions. The Nifty has given the first signs of reversing after a steep rise," he added.

The India volatility index or VIX jumped 4% on Friday, indicating the rise of anxiety and fear among investors.

VIX, often referred to as the fear index, shows investors’ perception of markets in the near future.

Analysts said the markets will remain volatile till the Union budget scheduled for 1 February.

“Along with the weak global market, in the coming week, the domestic market will shift its focus on the banking and finance sector as major banks and NBFCs (non-banking financial companies) are to release their quarterly results. The market can be volatile going forward, including concerns over how will the Union budget be," said Vinod Nair, head of research, Geojit Financial Services.

Nomura said that in sync with the ongoing growth upcycle, the Indian economy will enter a Goldilocks period in the coming months as inflation continues to moderate.

“This should offer some relief to the RBI (Reserve Bank of India) and sets the stage for a status quo on policy rates for now. The process of policy normalization, however, appears imminent. In our base case, we expect the RBI to allow the expiry of the cash reserve ratio cuts in end-March, which will result in a reduction in durable liquidity," it said.

Nomura expects the policy stance to shift to ‘neutral’ from ‘accommodative’, followed by repo rate hikes of 50 basis points in the first half of 2022.

Meanwhile, the Reserve Bank of India on Friday said it has drained 2 trillion of liquidity from the system via the 14-day reverse repo auction as it starts normalizing liquidity operations.

The cut-off for the auction was set at 3.55%, 20 basis points higher than the central bank’s reverse repo rate of 3.35%.

The central bank got bids worth 3.06 trillion, it said.

Foreign institutional investors (FIIs) have pumped $2.44 billion into Indian shares so far in January, while domestic institutional investors were net sellers worth 12,323.3 crore.

The rupee closed at 73.07, down 0.03% against the dollar.

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