Market crash: Benchmark indices wipe gains of the last 6 sessions!

Market crash: Benchmark indices wipe gains of the last 6 sessions!

Last updated: 21 Dec, 2020 | 11:55 am

Market crash: Benchmark indices wipe gains of the last 6 sessions!

Benchmark indices Sensex and Nifty erased gains made in the last six sessions and investor sentiment took a beating due to fears around the new variant of Coronavirus that has gripped the UK and various parts of Europe.

Performance Snapshot

All the sectoral indices ended in the red. Auto, Bank, and Metal indices fell between 4-6% (indicated below).

Here are some key factors that weighed on investor sentiment today:

New strain of virus in the UK

Over the weekend, UK announced fresh restrictions after the outbreak of a new and faster-transmitting strain of the virus. While there is no evidence yet about whether the virus is more deadly, experts have said that it seems to spread more easily than Covid-19. Following that development, many countries, including India, have banned flights from the UK to limit the spread of the virus.

Poor economic data in the US

Last week, the Federal Reserve kept key policy rates unchanged in the US and said that it will continue to support the economy through massive monetary stimulus until it sees “substantial further progress” in employment and inflation. The committee observed that economic activity and employment remain substantially below pre-Covid levels.

Fears that Brexit talks may fail

The lack of a post-Brexit trade deal ahead of the December 31 deadline also added to investor woes. Failure to reach a trade deal would mean the UK doing business with its largest and nearest commercial partner on terms set by the World Trade Organization -- meaning millions of businesses and consumers would face the cost and disruption of tariffs and quotas, IIFL report noted.

Expensive valuations

Before today’s crash, the market was soaring to all-time highs driven by FII flows, progress on COVID-19 vaccines globally and signs of a domestic economic recovery. However, as pointed out by INDmoney last week (read report), the market was trading at unsustainable valuations and a correction was likely as the sharp rally has made investors cautious.

INDmoney Analysis

Our proprietary VGQM model has a ‘Neutral’ rating on the Nifty 50, indicating that the market valuations are still not favourable. Therefore, we advise you to:

  • Book profit in case of significant gains and avoid lump-sum investments in the stock market
  • Stagger your lump sum equity investments into smaller fractions before deploying into this market
  • Continue your SIP investments
  • Stop large lump sum investments into NIFTY ETFs