Not Omicron: Zerodha co-founder sees this as biggest risk to stock markets


Inflation, not Omicron, is the biggest threat to the stock market rally seen over the last one and a half years, according to Nikhil Kamath, co-founder of India’s biggest stock brokerage Zerodha.

“While the new Omicron variant seems to be more infectious than the Delta variant, we still have little to no information regarding the fatality rates or what it’s effects are on the people already vaccinated. So it’s still very early to comment on the impact it’ll have on the world, the travel policies and consequently the global economy,” he said. 

“In terms of the market, covid led to a massive rally in the global stock market, and I doubt that Omicron alone can erase all those gains. However, people may use it as a trigger to short this over-expensive market,” he added. 

However, “fear surrounding the new variant may lead to travel restrictions and lockdowns, which can in turn reduce demand for oil, thereby cooling off inflationary pressures to some extent. The biggest risk to the markets according to me isn’t this but inflation. I believe it’s best to stay defensive until a clear trend emerges,” Mr Kamath said. 

Indian stock markets were down sharply today as the country recorded more cases of the Indian Omicron variant over the weekend, while investors awaited a RBI decision due later this week.  The blue-chip NSE Nifty 50 index was down 0.66% to near 17,050 with auto and information technology (IT) stocks leading the decline.

The three-day monetary policy committee meeting of RBI starts today. While the RBI is expected to maintain status quo on the interest rate policy, investors will watch out for commentary from the central bank to get direction.

Meanwhile, global oil prices rose by more than $1 a barrel  after top exporter Saudi Arabia raised prices for its crude sold to Asia and the US and as indirect U.S.-Iran talks on reviving a nuclear deal appeared to hit an impasse. The price hikes were implemented despite a decision last week by the Organization of the Petroleum Exporting Countries and their allies including Russia, a group known as OPEC+, to continue increasing monthly supply by 400,000 barrels per day in January.

Brent crude is down 15% since late November to just below $70 a barrel, reducing this year’s gain to 35%. The fall is mainly due to the discovery of omicron and the prospect of more barrels coming on to the market from OPEC+ and major importers such as the U.S., who want to lower domestic fuel costs.

After hitting a record high in October, Sensex is down about 5,000 points from those levels on concerns over over-valuation, faster-than-expected Fed tapering due to rising price levels and most recently, Omicron, worries. 

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