Markets rebound as Omicron fears ease; FPIs remain net sellers

India’s benchmark indices rebounded from their three-month lows on Tuesday on hopes that the Omicron variant of coronavirus would likely cause only mild illness and prove less damaging to the economy.

The Sensex closed at 57,633, up 886.5 points, or 1.56 per cent -- the most since September 23. In intra-day trade, the index was up as much as 1,158 points, or 2.04 per cent. The Nifty50 index, on the other hand, ended the session at 17,146, up 233.6 points, or 1.38 per cent -- the most since November 1. In the previous session, both the indices had closed at their lowest level since August 27 after dropping 1.65 per cent.

Despite the sharp rally, foreign portfolio investors remained net sellers to the tune of Rs 2,585 crore. In the previous 11 trading sessions, overseas funds have sold shares worth nearly $5 billion.

Most global markets traded over 1 per cent higher after a sharp overnight rally on Wall Street, with initial data showing that the surge in Omicron cases had not overwhelmed hospitals. The US markets jumped after President Joe Biden’s Chief Medical Advisor Dr Anthony Fauci said, “Thus far, it does not look like there’s a great degree of severity to it.”

In early trade on Tuesday, US’ Dow Jones Industrial Average index rallied about 1.5 per cent, while the Nasdaq and the S&P500 were up 2.9 per cent and 2 per cent, respectively (as of 9 pm IST).  

“Another day, another directional move by the markets on whatever the latest Omicron headline is. Following on from yesterday’s indicative news from South Africa that the new Covid-19 variant could be milder than previous versions symptom-wise, much the same message was reinforced by the US’ Dr Anthony Fauci overnight. That was all markets needed to hear really,” said Jeffrey Halley, senior market analyst, Asia Pacific, Oanda.

While global equity markets rallied, other asset classes held steady. Gold, treasury, and dollar saw little change.

Beijing’s measures to support economic growth and faster-than-expected export growth in the world’s second-largest economy also buoyed sentiment. Chinese tech stocks posted huge gains, with Alibaba Group soaring the most since its 2019 listing in Hong Kong.

All the 19 sectoral indices of the BSE ended with gains. The BSE Metal gained the most at 3.2 per cent as commodity prices staged a rebound. The rate-sensitive BSE Bankex and Real Estate indices gained 2.54 per cent and 2.6 per cent, respectively.

“Global markets traded with optimism on reports that the Omicron strain may not be as severe as expected. Moreover, additional liquidity freed up by the Chinese central bank through policy easing boosted the Chinese markets. In the domestic markets, banking and financial stocks advanced ahead of the RBI Monetary Policy Committee’s policy decision,” said Vinod Nair, head of research at Geojit Financial Services.

Nair said the RBI could maintain the status quo “considering the short-term uncertainties".

Experts said besides the RBI commentary, investors would also focus on the spread of the new strain and whether it leads to any curbs. While concerns around Omicron eased, another pressure point for the domestic markets — selling by overseas funds — showed little signs of abating.

“While the markets have seen some relief today, the overall volatility is likely to remain for some more time until FPI selling reduces. Investors would await cues from global central banks for direction on the monetary policy as well as interest rates,” said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services.

The overall market breadth was positive on Tuesday with 2,300 stocks advancing and only 985 declining on the BSE. All the 30 Sensex components posted gains barring Asian Paints, which fell just 0.22 per cent. Tata Steel, Axis Bank and ICICI Bank gained the most— about 3.5 per cent each.