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Domestic equities crumbled under the global meltdown on Monday as tensions flared up between Ukraine and Russia. The geopolitical breakdown between the two nations also had a bearing on oil prices, which are now above $95 per barrel-mark.
In early deals, the benchmark S&P BSE Sensex plummeted 1,541 points while the Nifty50 slipped below the 16,950-mark at 16,916.5. This was the indices lowest level in 3 weeks.
Heavyweights like Tata Steel, HDFC twins, Reliance Industries, ICICI Bank, SBI, Kotak Bank, Bajaj duo, Bharti Airtel, Maruti Suzuki, ITC, and Axis Bank shed between 2 per cent and 4 per cent.
All the sectoral indices were bleeding with the Nifty PSU Bank index down about 4 per cent, followed by the Nifty Bank, Financial Services, and Metal indices (2.8 per cent each), and the Nifty FMCG, Auto, and Private Bank indices (over 2 per cent each).
The market breadth was awfully bearish with six stocks declining against one advancing stock on the BSE. On the NSE, the advance to decline ratio stood at 1:9. Volatility index, India VIX, meanwhile, surged over 17 per cent.
According to analysts, the short-term outlook for the markets is turning increasingly negative and soaring oil prices can further dampen the sentiment for India.
“Crude at an eight-year high is a major macro concern. If it remains at levels of $95 for an extended period of time, the RBI will be forced to revise upwards its 4.5 per cent CPI inflation projection for FY23. Continuation of the accommodative monetary stance, too, will be difficult,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.
Let’’ look at the reasons for today’s market fall:
Ukraine-Russia clash
Russia’s attempt to foil Ukraine’s membership attempt in NATO is taking an ugly turn with countries such as the US and UK signaling at a “possible war”.
While Russia has denied any plans to invade Ukraine despite the build-up of some 130,000 soldiers on Ukraine’s borders, Western nations have warned that Russia is preparing for military action, with the US saying Moscow could begin with aerial bombardments “at any time”.
Amid this, more than a dozen countries, including Australia, Italy, Israel, the Netherlands, South Korea, and Japan, have urged their citizens to leave Ukraine.
Oil on the boil
Tensions between the two nations also lifted oil prices to their highest levels in more than seven years on fears that a possible invasion of Ukraine by Russia could trigger sanctions from US and Europe and disrupt energy exports from the world’s top producer.
Brent crude futures were at $95.57 a barrel, up $1.13 or 1.2 per cent at 9:50 AM, after earlier hitting an intraday high of $95.91. US West Texas Intermediate (WTI) crude rose 1.6 per cent to $94.4 a barrel, hovering near a session-high of $94.92. READ MORE
“We expect crude oil prices to remain volatile this week amid volatility in the dollar index and Russia-Ukraine tensions. WTI could hold $88 a barrel and Brent could hold $90 a barrel in the international markets. Crude oil is having support at $92.00–90.50 and resistance is at $95.50–96.80 in today’s session,” said Prashanth Tapse, Vice President (Research) at Mehta Equities.
Inflation worries
Oil’s surge toward $100 a barrel for the first time since 2014 is threatening to further dent growth prospects and drive-up inflation. That’s a worrying combination for global central banks as they seek to contain the strongest price pressures in decades without derailing recoveries from the pandemic.
Analysts caution much of the world will take a hit as companies and consumers find their bills rising and spending power squeezed by costlier food, transportation and heating.
India is due to report its retail and wholesale inflation data for January later in the day.
FII selling
Foreign investors are dumping Indian equities as interest rate hikes by developed countries, combined with high inflation, oil price rise, and profit booking after a one-way rally, dampen outlook for emerging markets.
So far in the current calendar year, FPIs have offloaded Indian securities worth Rs 43,461 crore, including Rs 43,383 crore in equities.
That said, Analysts say FIIs may choose to remain on the sidelines for now, and come back in a big way in the later part of 2022 when the markets face less headwinds. READ ABOUT IT HERE
Technical outlook
According to Sameet Chavan, Chief Analyst-Technical and Derivatives at Angel One, 17,000 is expected to act as the key demand zone for the Nifty50 index. And till the market is holding the mark, we remain hopeful for a strong resurgence. On the higher end, 17,650 is a crucial supply area
Parth Nyati, founder of Tradingo added: Nifty is trading near-critical demand zone of 17,000-16,800, and the ‘buy on dip’ texture will be continued till Nifty trades above 16,800 level, its 200-DMA. However, there are multiple resistances on the upside till 17,650 where 17,300/17,500 are immediate hurdles. There are no worries till Nifty trades above the 16,800 level but if Nifty slips below 16,800, then things may become ugly.
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