Valuations, border conflict roil stocks


Indian markets fell for the third straight session, with the benchmark indices losing nearly 1% on Monday on concerns that valuations are overly stretched and reports of renewed skirmishes between Indian and Chinese troops. In the past three sessions, the Sensex fell 3% after hitting 50,000 in intraday trading on Thursday.

“We have seen Indian markets being highly volatile these days, and this trend is expected to continue this week as we inch closer to the Union budget,” said Vinod Nair, head of research at Geojit Financial Services. “Policy decisions of the US Fed meeting, which will commence on Tuesday will drive the global market in the coming days.”

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The BSE Sensex lost 530.95 points, or 1.09%, to 48,347.59 on Monday. The Nifty shed 0.93% to 14,238.90.

Indian and Chinese troops were engaged in a face-off at Naku La area in north Sikkim last week, with the Indian Army on Monday describing the incident as “minor” and resolved by local commanders.

Stocks in other Asia-Pacific markets were mixed as investor focus remained on the covid-19 pandemic. Hong Kong’s Hang Seng index led gains among the region’s major markets, rising 2.41%. South Korea’s Kospi gained 2.18%, China’s Shanghai Composite advanced 0.48% while Japan’s Nikkei 225 rose 0.67%. European markets were mostly lower.

US President Joe Biden will impose a ban on most non-US citizens entering the country who have recently been in South Africa starting Saturday in a bid to contain the spread of a new variant of covid-19, a senior US public health official told Reuters. Biden on Monday is also reimposing an entry ban on nearly all non-US travellers who have been to Brazil, the UK, Ireland and 26 countries in Europe that allow travel across open borders.

“Markets may continue to remain highly volatile ahead of monthly expiry and budget. The ongoing earnings season further adds to volatility. The Fed monetary policy is also due this week, which would be the first one post-Biden taking over as president,” said Siddhartha Khemka, head-retail research, Motilal Oswal Financial Services.

The India volatility index or VIX, jumped 4% on Monday, indicating there could be more declines. Analysts said the volatility in markets is likely to continue until the Union budget is presented on 1 February.

As covid-led disruptions continue, the government’s focus in the budget is likely to remain on growth with a clear focus on capex revival and manufacturing, boosting healthcare and sanitation, said analysts. “While FY22 real and nominal GDP is likely to bounce back at 10% and 15%, respectively, it will have an advantage of the low base of FY21. Hence, for sustained long-term growth, we expect government to push for bigger reforms …to make India a preferred destination for manufacturing,” ICICI Direct said in a 25 January note.

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