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Worst day for D-Street since April as new COVID variant spooks investors; here's what else is hurting market

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The Sensex and the Nifty50 tanked around 2.5 percent each to hit their lowest intraday levels on Friday, recorded in almost three months. A sell-off across global markets has sent shockwaves to Dalal Street amid concerns about a new COVID variant.

Worst day for D-Street since April as new COVID variant spooks investors; here's what else is hurting market
Indian equity benchmarks tanked nearly three percent on Friday tracking a sell-off across global markets as a new variant of COVID-19 spooked investors. That was the worst single-day fall for both Sensex and Nifty50 since April 12. The sharp losses come as the market began the December futures & options series, after ending a monthly series lower for the first time in four months.
The news of the detection of a new and possibly vaccine-resistant variant of the coronavirus cast a sharp blow to investors' appetite for risk, sending them rushing to the safety of bonds, the yen and the dollar. MSCI's emerging market index plummeted 1.7 percent.
"There is fear of this new variant spreading to other countries which might again derail the global economy. There is already uncertainty as to when the US Fed will start raising interest rates. So the markets might continue to reel under pressure and would actively track the COVID situation globally," said Hemang Jani, Head of Equity Strategy and Senior Group VP-Broking and Distribution at Motilal Oswal Financial Services.

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Here are some key factors that are impacting the market now:
COVID variant: Scientists said the variant, detected in South Africa, may be able to evade immune responses. Little is known about the new variant, however, scientists told reporters it has a "very unusual constellation" of mutations, according to a report by Reuters.
The news comes at a time when the Indian market has broken a series of records in a rebound from the pandemic lows, triggering concerns about unreasonably priced valuations.
Valuations: Indian equities have become expensive following a near one-sided rally in the past 18 months. Foreign brokerages have lowered their ratings on the Indian market and advised their international clients to book profits.  According to them, the Sensex and Nifty are trading far ahead of their historic valuations. The RBI has also cautioned against high equity valuations. The equity market has been performing strongly since the COVID-19 pandemic, but the valuations of companies are much higher than what would be expected based on financial indicators, its economists said.
Fed tapering: The US central bank is set to begin tapering its $120 billion a month of pandemic-era bond purchases, by $15 billion a month. It plans to end the stimulus altogether in 2022. This means less liquidity in global markets, which in turn could reduce allocations by foreign investors to markets, including India.
Costly crude: Crude oil prices continue to decline, though still above India’s comfort zone. Brent was last seen down 2.5 percent at $80.2 a barrel, and WTI down 3.1 percent at $76 a barrel. The US has launched an auction for 32 million barrels of crude from four strategic petroleum reserves sites to be delivered between late December and April 2022. The sale of SPR oil is expected to benefit buyers in Asia.
Inflation: Price increases have remained high around the globe primarily due to supply chain blockages and labour shortages. Most central banks have said that high inflation is temporary, but many investors believe that price increases are unlikely to subside anytime soon, which may lead to interest rates hikes.
Risk-off strategy: Investors globally are staring at an earlier-than-expected hike in key interest rates by the Fed, which could trigger many investors to move a part of their assets out of risky assets like emerging market equities. This spells troubles for emerging markets in general, including India, which has outperformed most of its peers in 2021.
Repeal of farm laws: While this does not have a direct bearing on stock valuations, it has come as a sentiment dampener in a weak market. The Farm Laws Repeal Bill, 2021 will be introduced in the Lok Sabha for passage in the winter session of Parliament, which begins on November 29. The government’s decision has led to concerns about the fate of other more difficult reforms.
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