The domestic benchmark indices have witnessed sharp losses in the recent past after Russia declared a war on Ukraine. Extending losses for the fourth straight session, the Indian benchmark indices dropped over 3% in early trade on Monday amid a record surge in crude prices and sustained selling by foreign investors in the wake of geopolitical crisis triggered by the Russia-Ukraine war.
The 30-share Sensex opened lower today and declined as much as 1,791 points or 3.3% to hit a low of 52,542 in the first hour of trade today. In a similar trend, the Nifty 50 shed 503 points or 3.1% to slip below the psychological level of 16,000 at 15,741.
The top loser on the BSE Sensex pack was private sector lender Axis Bank, which dropped 5.26%. Among others, Bajaj Finserv, IndusInd Bank, UltraTech Cement and Larsen & Toubro fell up to 5% in early trade.
Among sectors, barring metal, all indices were flashing in red, while rate-sensitive bank and realty space declined the most. The BSE bank index slipped 4.3% and the BSE realty fell 3.84%.
"The extraordinary uncertainty triggered by the war has pushed commodity markets into turmoil. Crude at $128 is a big shock. This can impact global growth and aggravate inflationary pressures. In India, growth will be lower and inflation higher than projected for FY23,” says V K Vijayakumar, chief investment strategist at Geojit Financial Services.
“Market is slipping into bearish territory. Investors have to be cautious. There is relative safety in energy due to high energy prices, metals due to high global prices, and export segments due to resilient demand and rupee depreciation. Calibrated buying in very small quantities may be considered in the above mentioned segments," he added.
Here are key factors that fuelled sell-off in the equity market:
Crude oil spikes to multi-year high
The market sentiment was dented by record rally in crude prices which is likely to add inflationary pressure on the economy. Brent crude surged to a near 14-year high of $140 due to supply disruption in the global oil market following the Russian invasion of Ukraine and subsequent sanctions against Moscow.
In a fresh blow to oil market, the U.S. and its allies are planning to impose ban on import of Russian oil, which is likely to further tighten oil supply.
During the early Asian trading hours on Monday, the U.S. West Texas Intermediate (WTI) crude futures jumped 7.35% to $124.17 a barrel, while the Brent oil futures spiked 8.6% to $128.18 per barrel.
Weak global cues
The weakness in global equities also weighed on market sentiment. Shares in the Asia-Pacific region were trading sharply lower today as the war between Russia and Ukraine continues to dent investor sentiment. The continued surge in commodity prices, including crude oil, and hawkish policy stance by the U.S. Federal Reserve also dragged the markets lower.
Japan’s benchmark index Nikkei 225 plunged 3.6% in early deals, South Korea’s KOSPI tumbled 2.5%, and the Straits Times Index in Singapore slipped 0.55%.
The Hang Seng index in Hong Kong was the worst performer in the region with a 4.1% loss, while Australia’s ASX 200 index fell 1.4%.
In mainland China, the Shenzhen Component slumped 1.9%, while the Shanghai Composite shed 1.4% in early deals.
On Friday, all three major U.S. indices ended lower as concerns about war in Ukraine overshadowed a boost in the U.S. jobs market. The Dow Jones Industrial Average slipped 0.53%, the S&P 500 shed 0.79%, and the Nasdaq Composite tumbled 1.66%.
Russia-Ukraine war
The ongoing war between Russia and Ukraine has raised concerns about global economic growth and fuelled a rally in commodity prices. The geo-political uncertainties have prompted investors to shift focus to safe haven assets such as gold and the dollar. Gold prices breached $2,000 per ounce on Monday as investors’ appetite for riskier assets declined due to ongoing volatility in the equity market.
Rupee at lifetime low
The rupee hit an all-time low of nearly 77 a dollar on Monday amid spike in crude prices on reports that the U.S. and its European allies were mulling a ban on Russian oil. The rupee dived 81 paise to 76.98 against the US dollar in opening deals as escalated Russia-Ukraine conflict boosted demand for the greenback. At the time of filing this report, the domestic currency was trading at 76.96.
On Friday, the Indian currency breached the 76 level despite heavy dollar selling by public sectors banks on behalf of the Reserve Bank of India.
Sustained sell-off by FPIs
The continued sell-off by the foreign investors also injected negatively in the market. Foreign portfolio investors (FPIs) flushed out ₹17,537 crore from the Indian markets in just three trading sessions of March amid political uncertainty and spike in crude prices triggered by Russia-Ukraine war. As per the exchange data, FPIs pulled out ₹14,721 crore from equities, ₹2,808 crore from debt segment and ₹9 crore from hybrid instruments during this period.
As per the data available on the NSE, foreign institutional investors (FIIs) remained net sellers in the Indian equity market on March 4, while domestic institutional investors (DIIs) were net buyers. FIIs sold shares worth ₹7,631 crore, while DIIs net purchased shares worth ₹4,739 crore.
Technical outlook
The Nifty 50 index witnessed a roller coaster move, as index witnessed more than 2,300 points intra-week movement. “As a result, weekly price action formed a bear candle carrying shadows on either side, indicating extended correction amid elevated volatility. In the process, Nifty managed to hold last week’s panic low of 16,200 on a closing basis,” according to an ICICI Securities analysis.
As per the report, the bias remains negative as the index continues to form a lower high-low led by anxiety around geopolitical events leading spike in crude oil prices, outcome of Uttar Pradesh election and U.S. Fed policy. With today’s session gap down opening index is likely to open below 52 weeks EMA, indicating extended correction, it added.
