What resulted in the sharp fall in the markets on 06th January? Was it the Omicron scare or the Fed minutes?

Actually, it was a lot of both. More than Omicron, which is expected to be less lethal, the Fed hawkishness is a real risk. On Thursday, Nifty and Sensex were sharply lower due to extreme Fed hawkishness, although the markets did bounce from lower levels. The big losers on Thursday were the digital stocks which mirrored the sharp selling on NASDAQ.

In terms of market structure, the Nifty lost 179 points on with an unfavourable advance decline ratio of 15:35. At the same time, the fear index or the India VIX rallied higher to 17.98 levels. Sectoral themes included the steel and cement stocks coming under pressure. Cement is badly hit as the Omicron lockdowns could again bring down construction work.

Foreign investors again were net sellers in equities worth Rs.1,927 crore while domestic funds and LIC bought stocks worth Rs.801 crore on 06th January. The selling was quite aggressive after the Fed minutes. However, in global markets, while the Dow cracked 171 points, NASDAQ was flat. SGX Nifty is trading 15 bps higher in early trades on Friday.

In terms of outlook for Friday, there will be some obvious caution from traders considering that it is a weekend and there are a lot of volatile factors like oil, rates etc. Some lightening of trade positions could result in selling in the markets in the second half, although it is likely to be more subdued compared to the Thursday selling.