INdian Indices remain bearish, inflation, fii selling and more

Indian Indices Continue Bearish Decline; Corrections, Inflation, FII selling and Omicron the Biggest Reasons
Exhibiting a similar trend to previous weeks, Indian benchmark indices marked the end of yet another bearish week - the week ended Friday December 17th - contributing to mild feelings of perturbations amongst investors. Initially, both equity benchmarks displayed positive notes at the start of the trading day, yet exhibited stagnancy and depreciation as the day progressed, a theme which has become ubiquitous over the better of the last two months or so. 

BSE Sensex decreased by 1.5% to conclude the week at 57,011.74, whilst NSE Nifty 50 exhibited a similar pattern to shrink by 1.6% to continue to underperform, with a closing valuation of 16,985.20 

Both indices have failed to exceed their all time peaks which was achieved on October 18th, with Sensex and Nifty possessing all-time highs of 61,765 and 18,477 respectively. In the period since then however, degrading progressions and falling performances have gained prevalence across Indian markets.

Recent devaluations in market performance can be largely credited to a considerably intense market correction phase, resulting in the correction of Indian equity markets by over 8 percent over the last month, marking the conclusion of a one and a half year bull streak. 

Bearish market performances, not just in India, but internationally as well, are transpiring as a result of a multitude of factors, including but not limited to surges in global inflation rates, the transmission of the Omicron (B.1.1.529) variant globally as well as incensed selling by foreign institutional/portfolio investors (FIIs/FPIs).

Contravening initial projections, global inflation rates have wrappled the economies of a multitude of nations across the world at a far more unanticipated and aggravated rate. This is particularly evidenced through enlarging inflation rates in the United States, the European Union and China, all of which are encountering the highest inflation rates in recent years. 

Subsequently, major economic entities such as the US Federal Reserve, have been prompted to accentuate interest rates and announce a termination of their bond purchasing. Given the interconnectedness global markets, such as India, possesses on these particular markets, widespread sell-offs have been triggered. 

Saturnine international market performances over the past week have, disconcerted investors globally, can be primarily considered the result of the emergence of the virulent Omicron variant, with an increasing number of countries detecting cases of the new variant. The threat of an aggravated wave of virus transmission, as it is already happening in the US and many European nations, has already presented significant interruptions towards economic recovery. 

The World Health Organisation issued a statement concerning how the presence of omicron has been detected in 89 nations, and Covid-19 infections that directly involve this variant are doubling at alarming rates, almost every 1.5-3 days. As of December 19, India’s omicron case count has increased to 145, and these disruptions certainly have inflicted hesitation amongst investors.

Foreign institutional investors (FIIs) are a commonly used term in India to refer to an investor that invests in a nation outside of the one it is registered in, whereas foreign portfolio investments concern the financial assets held by investors in abroad nations. 

India has served as one of the best domestically performing investment markets across the world, and subsequently acts as a repository for international investors to allocate their holdings in. However, recent hiccups presented by global factors have prompted a sharp selling of assets by FIIs, resulting in the hindering of the benchmark indices.

As the commencement of 2022 lies just on the horizon, Indian and international markets should be prepared to face a tempestuous and dynamic conclusion of the calendar year.

Written with input from Money Control and The Economic Times

Written and Edited By: Ronojoy Borpujari