Motilal Oswal Financial Services expects volatility in the equity markets to continue with the outbreak of the Omicron virus variant, while stocks from defensive sectors such as pharma, IT and consumer durables will hog the limelight.

The total number of active Covid cases is currently at 0.11 million, against the peak of 4 million in May. The decline in active cases has led to an increase in economic activity and mobility.

While the new variant – Omicron – adds to the uncertainty, MOFSL expects more clarity to emerge in the next few weeks as additional data comes out. The new virus variant will mar sentiment in travel, tourism, hospitality and retail, which have outperformed in the last few months on the back of the opening up of the economy, a good festive season and a broad-based demand recovery, said the India Strategy Report of MOFS.

Unlike the first Covid wave early last year, the government managed the second wave in April-May with local restrictions and no nationwide lockdowns. MOFSL anticipates a similar approach, if the necessity arises, in the future.

Among the major indices, metals (-15 per cent), private banks (-11 per cent), FMCG (-10 per cent), realty (-9 per cent) and auto (-9 per cent) have taken a beating.

The Nifty has corrected 8 per cent since hitting a new high on October 18, owing to global factors such as the US Fed's taper announcement, rising bond yields, higher crude oil prices, and the strengthening of the US dollar index.

Primary market activity in India remains elevated, with fresh fund raising increasing to about Rs 96,400 crore so far this fiscal, against Rs 90,900 crore raised in FY’18.

The discovery of a novel Covid variant – Omicron – in South Africa wreaked havoc on global equity markets on November 26. This resulted in risk-off sentiment, with markets correcting by 2-3 per cent globally, easing bond yields and an 11 per cent fall in Brent Crude prices.

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