Bears hugged the Indian markets on Monday, shedding 3 percent following a massive sell-off across global markets. This was fuelled by escalating geopolitical tensions between Russia and Ukraine as well as the emergency US Fed meet. Back home, all the sectors contributed to the losses with banking, financials and metals dragging the most.
The Sensex ended 1,747 points lower at 56,405 while the Nifty lost 532 points to settle at 16,842. Since Friday, the benchmark indices have crashed over 4 percent each. The Sensex has lost as much as 2,602 points while the Nifty has tanked 763 points.
Market cap of BSE listed firms eroded ₹2.7 lakh crore in just these 2 sessions.
The volatility index India VIX also soared 23 percent as weak global trends wreaked havoc over investor sentiment in India.
"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. The consequences of severe sanctions on Russia in the event of a Russian invasion can be debilitating for the Russian economy. This may restrain Putin from misadventure in Ukraine," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
He advised that long-term investors who can ignore the present short-term gyrations can buy high-quality financials and IT stocks now.
Let's look at the key reasons behind this major selloff:
Escalating Russia-Ukraine tensions: Global markets sank after the US said on Sunday that Russia could invade Ukraine at any time and might create a surprise pretext for an attack, reaffirming a pledge to defend NATO territory. This crisis has stoked investor fears over crude oil supplies as the Russian invasion could draw sanctions from the West. Russia is the third-largest oil producer.
Rise in crude oil prices: Crude rose to the highest level in more than seven years on fears that a possible invasion of Russia in Ukraine could trigger US and European sanctions. Joe Biden's National Security Adviser Jake Sullivan said an invasion could begin "any day now" and that is extending gains for the commodity. "More clarity during the week will be needed and volatility could remain elevated for the energy complex. Increased uncertainty between Russia and Ukraine is expected to keep crude price supported at lower levels," Navneet Damani, Sr. Vice President - Commodity & Currency Research, Motilal Oswal Financial Services said in a note.
Emergency US Fed meet: The notice for an emergency US Fed meet has added to the fears of an aggressive rate hike as crude oil prices hit a 7-year high. This led to a selling rout in global as well as domestic markets.
"It is anticipated that the closed meeting of the Board of Governors of the Federal Reserve System at11:30 a.m. on Monday, February 14, 2022, will be held under expedited procedures...The following items of official Board business are tentatively scheduled to be considered at that meeting: Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks," the Federal Reserve website showed.
Rate hike concerns: The rise in crude oil prices, aggressive indication of a rate hike by the US Fed as well as rise in inflation can force the Reserve Bank of India to pre-maturely raise rates and change its accommodative stance. Fears of a rate hike back home have also led to further weakness in investor sentiment. Vijayakumar added that if crude remains at levels of $95 for an extended period of time, the RBI will be forced to revise upwards of its 4.5 percent CPI inflation projection for FY23. Also, the continuation of the accommodative monetary stance too will be difficult.
Weak Rupee: A weak rupee makes India an unattractive market leading to foreign outflows. On Monday, the rupee opened at 75.5430 per dollar against 75.380 at the previous close. Selling pressure by FIIs also added to the weakness. foreign investors have sold Indian equities worth ₹10,000 crore just in February till now. For 2022 YTD, the net outflows stand at ₹43,383 crore.
Domestic Markets
TCS was the only stock in the Nifty50 index that ended the day in the green while JSW Steel, HDFC Life, ITC, Tata Steel and HDFC falling the most, down between 5.5-6.5 percent each.
Among blue-chips, ICICI Bank, the HDFC twins, Infosys and Reliance Industries were the biggest contributors to the drop in the headline indices.
Broader markets also slumped with the Nifty Midcap 100 and Nifty Smallcap 100 indices down around 4 percent each.
Among sectors, Nifty PSU Bank shed the most, 6 percent followed by Nifty Metal and Nifty Realty. Nifty Bank, Nifty Fin Services, Nifty Auto and Nifty Private Bank also lost around 4 percent each.
