As UK virus mutation stings market, analysts hope for ‘healthy correction’ to buy more

Indian shares plunged on Monday after the discovery of a new, more infectious, coronavirus strain in the UK led to concerns the fight against COVID-19 may be more protracted than was being thought.

The Sensex fell 1406 points, or 3 percent, to close at 45,553 while the Nifty ended 432 points, or 3.1 percent, lower at 13,328. Mid and small caps fell about 5 percent on average, while some sector indexes fell as much as 7 percent.

“The news about the new virus strain in the UK spooked the market and triggered fears that more countries will resort to fresh lockdown,” S Krishna Kumar, CIO Equity of Sundaram Mutual Fund, told CNBC-TV18.

Global markets have made a sizzling comeback after falling as much as 30-40 percent in March this year, with many indices making fresh record highs.

Shares of companies that benefited from the pandemic — such as IT and pharma firms — have been among the standout performers this year, even as the focus in the latter half shifted to the “unlock trade”, or beaten-down sectors that had survived the pandemic — airlines, multiplexes and suchlike.

Still, there were fears that the market had become a bit too optimistic in weighing the prospects of a quick recovery aided by the full support of global central banks against the chances of a protracted slowdown. On a number of valuation parameters, stocks have been more expensive than they have ever been.

“This was bound to happen, be it today or one month down the line,” said Keshav Lahoti, Associate Equity Analyst, Angel Broking.

But Deepak Shenoy of Capital Mind said he wouldn’t look at today’s correction in a negative fashion.

“Hopefully, we will get a larger correction where some of the weaker hands will go away and you get opportunities to buy stocks,” he told CNBC-TV18.

Krishna Kumar too said that from a medium-term perspective, “these corrections are good opportunities for people to come in — if, in the next month, there are weaknesses in the market.”

Arnab Das, Global Market Strategist at Invesco, said that while the virus mutation leads to concerns of fresh lockdowns globally, governments and central banks have room to continue to support the economy through fiscal and monetary stimulus.

Some experts have warned that the “money printing” exercises that central banks around the world have resorted to could lead to inflation — this is evident in the way gold and bitcoin have behaved this year.

But Das said such concerns may be overdone given that the demand destruction resulting from COVID-19 is highly disinflationary in nature.

“So the central scenario still has to be that it (the economy and inflation outlook) is okay but the risks have gone up and that is why the market is responding this way,” he said.

Technical analysts said that the Nifty breaking the 13,500 did not bode too well for the market from the short-term perspective.

“We would now need to wait and watch the markets over the next couple of sessions,” said Manish Hathiramani, Proprietary Index Trader and Technical Analyst, Deen Dayal Investments.

“One should not take hasty and risky trades by going long or short on the markets. For the upside to resume, we would need to start trading above 13,750-13,800. To break on the downside, we should wait for a day or two and re-evaluate the markets. The strategy for the current market would be to sit on the sideline without a trade,” he added.

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