Covid fears, profit booking pulls indices; Sensex down 635 points

A combination of Covid-19 fears and profit booking pulled the Indian benchmark indices on Wednesday. The Sensex fell 635 points to end the session at 61,067 -- a decline of 1.03 per cent. The Nifty50, on the other hand, ended the day at 18,199, a decline of 186 points or 1.01 per cent.

The union health minister Mansukh Mandaviya chaired a meeting on the Covid-19 situation and urged for strengthening surveillance. India reported 131 fresh infections, according to news reports, on Wednesday.

"Covid scare is the only incremental negative newsflow that markets are grappling with at the moment. People are worried that things will go back to how it was in March 2020. We have the weekly settlement in derivatives tomorrow that might have added to the pressure,' said UR Bhat, co-founder, of Alphaniti Fintech.

A sell-off, mainly over concerns that recessionary fears in key major economies will have a spill-over effect on the local growth prospects going ahead contributed to the decline.

"Investors are also worried that mounting Covid-19 cases in China may lead to further deterioration in global economic health, prompting traders to cut their equity market exposure," said Shrikant Chouhan, head of equity research (retail), at Kotak Securities.

Nervousness ahead of the release of the minutes of the Reserve Bank of India's (RBI) Monetary Policy Committee meeting, further contributed to the volatility. The minutes revealed that RBI governor Shaktikanta Das was of the opinion that a premature pause in monetary policy action would be a costly policy error.

The governor further said that giving out explicit forward guidance on the future path of monetary policy would be counterproductive during these highly uncertain times, the minutes revealed.

The VIX index, a gauge measuring volatility, rose 13 per cent on Wednesday.

Going forward, analysts said investors will be keenly tracing the key macroeconomic data from the US, including the US gross domestic product (GDP) and initial jobless claims.

"Global cues are dictating the trend on expected lines and we expect the trend to continue. We reiterate our view to maintain a negative tone in Nifty until it reclaims 18,500. However, the downside also seems capped, thanks to support around the 18,000-18,100 zone. Considering the scenario, it's prudent to limit aggressive trades and prefer a hedged approach,' said Ajit Mishra, VP of technical research, at Religare Broking.

The market breadth was weak, with 2,841 stocks declining against 731 advancing on BSE.  Barring seven, all the Sensex constituents declined. Reliance Industries fell 1.4 per cent and contributed the most to the index decline, followed by ICICI Bank which fell 1.8 per cent.

Foreign Portfolio Investors (FPIs) were net buyers to the tune of Rs 1,119 crore, according to provisional data from exchanges.