Benchmark stock market indices plunged on Monday as investors remain worried about rapidly rising Omicron cases. However, there are several other factors that contributed to today's crash. Here is all you need to know.
After starting the day on a weak note, the benchmark stock market indices fell further. This is one of the biggest market crashes in the last few months, causing a loss of around Rs 10 lakh crore to investors' wealth.
Domestic stocks have fallen to their lowest level in nearly four months after Monday's steep fall. The S&P BSE Sensex was down over 1,700 points or 3 per cent at around 1:10 pm, while the Nifty was down over 535 points. It may be noted that there has been a sharp jump in volatility, with India's VIX rising up to 18 per cent.
Here are some of the factors that have led to the stock market crash today:
OMICRON threat intensifies
The threat posed by the rapid spread of the Omicron variant of the corona virus is the biggest reason behind the decline in today's stock market. After becoming a major strain in South Africa, it is spreading like wildfire in many European countries.
The rapid spread of the virus has again threatened the global economic recovery, causing weakness in stock markets around the world. Several countries are planning to reimpose restrictions to limit the spread of the new Omicron variant, while some countries such as the Netherlands have already gone under a new lockdown.
Experts believe that the Omicron version has badly disrupted the market momentum, leading to a correction in most of the stock markets, including India.
One of the reasons the new version scared investors is the fact that vaccines may be less effective against the highly mutated version of COVID-19. Less than a month after its discovery, Omicron has become a major strain in many countries. India is also witnessing a sudden surge in omicron cases, which already has over 150 cases.
"The Omicron version is also troubling the markets as its transmission is higher than other versions," Saurabh Jain, assistant vice president at SMC Securities in New Delhi, told Reuters news agency.
"The decline is also a result of continued selling by foreign institutional investors. Rollback of liquidity by central bankers will have some sort of consequence."
Heavy selling by FIIs
Another reason contributing to today's decline is heavy selling by foreign institutional investors. FIIs are continuously selling their stake.
The panic among FIIs is not only a result of the new Omicron threat, but also a result of central bank policies and rising global inflation. FIIs are also exiting the market due to rising volatility in the wake of a possible global economic slowdown.
Weak global cues
Equally devastating has been the impact of Omron's spread on global markets, not just the domestic market.
Stock markets in China, the US, Europe and other parts of the world also fell as the new coronavirus variant spreads rapidly across the globe.
Three major US stock indices ended in negative territory for the week after the US Federal Reserve announced at least three interest rate hikes in 2022 due to high inflation.
Other factors
Equity markets in Asia and other parts of the world are likely to see a correction due to the tough stance taken by central banks in developed countries to counter rising inflation. The past few months have seen a sharp rise in global inflation, prompting central banks to tighten policies.
The US Federal Reserve's plan to hike interest rates starting in 2022 received an almost immediate response as several other central banks raised rates to fight inflation. The Bank of England has become the first major central bank to raise interest rates since the pandemic began. Central banks in some other countries have raised interest rates several times after the pandemic.
While India is yet to hike key interest rates, it is more likely that the Reserve Bank of India (RBI) will gradually start raising key rates, given the fact that inflationary pressures are mounting. .