Indian indices opened in the red on Monday as the Ukrainian crisis sent oil prices boiling to a seven-year high, stoking fears of inflation and strong foreign outflows. At 12:30 IST, the Sensex was down 1,168 points at 56,985 levels, while the Nifty50 benchmark was 353 points lower at 17,022. The two had slipped 2 per cent each.
The frontline indices continued to hold losses in noon trades in a highly weak market as select financial counters and heavyweights Reliance (down 1.5 per cent) and ITC (down 1.85 per cent) persistently weighed on the Sensex benchmark. With the benchmark Sensex falling about 1,500 points in early hours of trading and midcap and smallcap indices plunging about 4 per cent each, investor wealth as suggested by BSE market capitalisation declined by Rs 6.27 lakh crore to Rs 257.62 lakh crore from Rs 263.90 lakh crore on Friday.
Ukraine Crisis
The US has warned that a Russia invasion into Ukraine invasion could be imminent while weekend talks between US President Joe Biden and Russian President Vladimir Putin failed to break any new ground. Meanwhile, the focus will be on German Chancellor Olaf Scholz visit to Ukraine today and to Russia on the next day for diplomatic talks.
The geopolitical tensions is another blow to risk assets markets that are already skittish about high inflation and the prospect of aggressive Federal Reserve interest-rate hikes. However, while all these are negatives, a diffusion of the Ukraine crisis can trigger a sharp rebound in markets led by large-cap bluechips, said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
State Elections
At the domestic front, voting for assembly elections in Goa and parts of Uttar Pradesh began on Monday. The Bhartiya Janata Party (BJP) is the incumbent government in both states. Santosh Meena, head of research, Swastika Investmart Ltd., said: On the political front, developments in the upcoming assembly polls Uttar Pradesh, Uttarakhand, Goa, Punjab, and Manipur will be closely watched.”
Rupee falls
The Indian rupee today declined 20 paise to 75.56 against the US dollar in opening trade on Monday, amid geopolitical tensions pushing investors to the safe-haven appeal of the greenback.
Inflation data
The retail inflation data is scheduled to be announced later today. “Crude at an eight-year high is another major macro concern for India. If crude 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.
Oil prices jump more than 1 per cent to 7-year highs
Oil prices on Monday hit their highest in more than seven years on fears that a possible invasion of Ukraine by Russia could trigger U.S. and European sanctions that would disrupt exports from the world’s top producer in an already tight market. Brent crude futures was at $95.56 a barrel, up $1.12, or 1.2 per cent, after earlier hitting a peak of $96.16, the highest since October 2014. U.S. West Texas Intermediate (WTI) crude rose $1.28, or 1.4 per cent, to $94.38 a barrel, hovering near a session-high of $94.94, the loftiest since September 2014.
Nifty Technical Outlook
“On technical aspects, 17000 is expected to act as the key demand zone as it is being backed by the supporting trend line. And till the market is holding the mark, we remain hopeful for a strong resurgence. On the higher end, 17650 is a crucial supply area and if the market manages to surpass the same in a decisive manner, then we might witness reinforcement in the momentum and could expect Nifty to test the psychological 18000 mark in the near future. Until the decisive breakout is not seen, one should expect a range-bound movement and focus on stock-specific action,” said Chavan.
What Should Investors do?
Speaking about investor strategy amid a highly volatile market, Mitul Shah, head of research – institutional desk at Reliance Securities, said: “Investors should keep holding their long position for quality companies. Due to FPI outflow, negative global cues, Russia Ukraine tussle, and higher crude prices markets would remain under pressure for some time. However, we believe that once these issues get settled down in the next 1-2 months and the Fed rate hike impact would get factored in, all the equity markets would rebound and we see a strong FY23 for equity markets. We maintain our 2022 year-end Nifty targets of 20,000.”
“The element of uncertainty is very high. If the Ukraine crisis aggravates into conflict it can inflict damage to the market in the short run. Long-term investors who can ignore the present short-term gyrations can buy high quality financials and IT stocks now,” said Vijayakumar explained.
Mirroring similar thoughts, Mohit Nigam, head – PMS, Hem Securities, said: “Market volatility is expected to stay on higher end, so investors should not jump in to markets for short term gains rather they should have a long term horizon and add quality stocks in such significant dips.”
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