Sensex, Nifty Post Biggest Single-Day Drop Since May On Virus Woes

India’s equity markets posted their biggest single-day drop in seven months as a new coronavirus strain in parts of the U.K. dampened investor sentiment.

The S&P BSE Sensex ended 3%, or more than 1,400 points, lower at 45,553. The NSE Nifty 50 also closed 3.1%, or more than 400 points, down at 13,328. That’s the worst fall since May this year.

“The apprehension is coming from the prolonged lockdown in the U.K and the concerns related to the new variant of the virus,” Sanjay Sinha, strategist at Citrus Advisors, told Bloomberg. The foreign institutional investor flows, too, are not likely to sustain going into the holiday season.

U.K. Health Secretary Matt Hancock warned that the new strain of the coronavirus is “out of control” and suggested parts of England will be stuck in the new, highest tier of restrictions until a vaccine is rolled out.

Across-The-Board Sell-Off

All sectoral indices suffered loss in Monday’s session, led by PSU bank and media indices that fell close to 7% and 6%, respectively. Metals, pharma and auto indices and the Nifty Bank index, too, dropped between 4% and 5%. The Nifty Midcap and Smallcap indices also declined more than 5%.

It was easier for investors to “pull the trigger” after a healthy run of gains amid concerns over the new virus strain, Chakri Lokapriya of TCG Asset Management told Bloomberg. “Stocks will resume their upward move if available vaccines prove to be effective against the new strain of virus,” he said.

According to Sameer Kalra, founder of Target Investing, the next month will be very crucial for global markets as the U.S. votes on the stimulus bill, and Brexit negotiations continue. “How this virus plays out will also weigh in,” Kalra told BloombergQuint over the phone, adding that he will remain watchful till Jan. 15.

Indian equity markets had tracked their global peers in their worst selloff in more than a decade after the Covid-19 outbreak. But since then they have rebounded to erase all their losses, scaling new peaks. Overseas investors have remained net buyers in all but Diwali trading session since the start of November, taking the net inflow into Indian equities to more than Rs 1 lakh crore.

“We have seen many times in the past that there has been a 400-500 point dip but there has not been a follow-up candle,” Gaurav Bissa, assistant vice president of LKP Securities told BloombergQuint over the phone.

According to Bissa, levels of 13,170-13,180 will be crucial for the Nifty index as a fall below that could lead to further pressure. “Today’s low of 13,131 will also be important as the correction happened on strong volumes. But follow-up selling remains the key.”

According to Shrikant Chouhan, executive vice president - equity technical research at Kotak Securities, the market has formed a big red candlestick on the daily chart. “It’s a bearish reversal formation in the short term,” he said in a note. Chouhan expects the Nifty to either slide to levels of 13,000 or 12,500, which were the previous highs. He expects 13,400-13,500 to act as a resistance.