Indices snap four-day rally on coronavirus surge, Fed's hawkish tone

India’s benchmark indices snapped their four-day winning streak on Thursday amid a surge in Covid-19 cases and negative global cues. The Sensex fell 621 points, or 1.03 per cent, to end the session at 59,601, while the Nifty dropped 179 points to close at 17,746.

The country reported 90,928 new Covid cases on Thursday, as against about 58,000 on Wednesday, spooking investors betting on Indian equities. The sharp rise in Covid cases has reignited concerns about economic recovery.

Moreover, the US Federal Reserve’s minutes showed the increasing preference among its officials for faster rate hikes and a shrinking of its balance sheet.

The indices had risen in the previous four sessions on the back of positive macroeconomic indicators, including goods and services tax collection and the manufacturing purchasing mangers’ index for December.

“The Fed’s tone was more hawkish than people expected. Moreover, valuations are not comfortable -- not just in the Indian market but markets across the globe. It’s not going to be a smooth ride for markets this year,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.

Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services, said the focus of central bankers across the world had shifted towards inflation and monetary policy normalisation. 

“Meanwhile, the third Covid wave has once again resulted in the imposition of some state-level restrictions. While this wave, so far, seems less severe in terms of mortality and hospitalisation, one needs to watch out for the trend and reactions of both the state and central governments in the next few weeks,” he said.

From now on, analysts said, apart from global cues and Covid, earnings-related updates would keep the volatility high.

“Traders should continue with a cautious approach and focus more on sectors/stocks selection,” said Ajit Mishra, vice president (research), Religare Broking.

The market breadth was positive, with 1,947 stocks advancing and 1,429 declining. As many as 642 stocks were locked in the upper circuit on the BSE, while 421 hit their 52-week highs.

More than two-thirds of the Sensex constituents declined. Tech Mahindra fell the most, by 2.6 per cent, while Reliance Industries and HCL Technologies declined 2 and 1.9 per cent, respectively. More than a dozen sectoral indices on the BSE declined. Realty and IT stocks declined the most, and their indices fell 1.5 and 1.4 per cent, respectively.