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Tags Current Affairs

Stock markets fall sharply

Date: 22 December 2021 Tags: Financial Markets

Issue

Owing to foreign investor selling and policy tightening plans by global central banks, the stock markets fell sharply.

 

Background

The benchmark Sensex feel by 1,429 point and NSE Nifty index was down 448 points.

 

Details

  • Big cap stocks such as RIL was trading 3.19 per cent down and HDFC Bank showed a decline of 3.01 per cent.

  • Tata Steel and Tata Motors witnessed a fall. The mid-cap index showed a decline of 3.86 per cent, and the small-cap fell by 3.60 per cent.

 

Major reasons

  • Foreign Portfolio Investors (FPI) were withdrawing funds from Indian markets since last couple of months. This was after signs of global central banks’ rates going up.

  • In December alone, FPI have withdrawn Rs 25,252 crore from Stock markets.  Withdrawal may also be made for booking profits to show higher returns and profits.

 

Role of global central banks

  • To tackle inflation, US Federal Reserve is likely to increase interest rates. The Bank of England has also increased interest rates.

  • Owing to hikes by Federal Reserve, the FPI outflow may increase in coming months. The easy money policy will be reversed soon.

  • The US Fed is also planning at a $30 billion per month tapering by closing the bond purchasing cycle.

 

The Omicron variant

  • Investors are worried about new restrictions on travel and lockdowns that can occur if Omicron cases increase in coming days.

  • If Omicron cases rise sharply in the upcoming days, the Indian economy can take another hit. It may face similar case as 1st and 2nd wave.

 

Way forward

  • Investors may have to be ready to face a hit. The profit margins are likely to take a hit if Stock markets crash further.

  • There are clear indications that the crash that took place is not yet over and there will be more market corrections in the upcoming days.

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