Markets

Explained: Key factors that are spooking Sensex, Nifty


It’s turning out to be a tough day for stock market investors as the domestic equity gauges Sensex and Nifty crashed over 3 per cent in early morning trade after Russia announced the military operation in Ukraine. Investors’ wealth tumbled by more than Rs 8 lakh crore in less than an hour of trade.
 
Experts are saying that geopolitical issues provide a good buying opportunity for long-term investors.
 
Further correction cannot be ruled out if the geopolitical tensions escalate or oil prices rise sharply from here. Market veteran Motilal Oswal also said that the Indian markets could fall around 10 per cent if a full-scale invasion happens.
 
Let’s look at the factors that are spooking the benchmark indices:
 
Russia-Ukraine war
 
The escalating tensions between Russia-Ukraine pushed stock markets deep into the red. Russian President Vladimir Putin announced a ‘military operation’ in Ukraine. He said the clashes between Russian and Ukrainian forces are “inevitable”. Putin even called on Ukrainian service members to “lay down their arms and go home”.
 
Ukrainian military command centres in Kyiv and Kharkiv have been attacked by missile strikes, reported Ukrainska Pravda news website, citing Ukrainian interior ministry officials.
 
“The geopolitical event has been causing a rout across equity markets, as the world can ill-afford further disruption in trade and commodities when Covid has already weakened sovereign balance sheets,” said Amar Ambani, Head – Institutional Equities, Yes Securities.
 
FIIs on a selling spree
 
Foreign institutional investors (FIIs) sold shares worth Rs 3,417.16 crore on February 23, and domestic institutional investors (DIIs) bought shares worth Rs 3,024.37 crore, as per provisional data available on NSE.
 
As of February 22, 2022, FIIs sold Rs 55,570.45 crore of equities. Yes Securities noted that 2022 started with the worst FII outflow in the last four years.
 
Brent crude oil at $100
 
The global benchmark Brent crude oil price on Thursday hit the $100 per barrel mark as Russian President Vladimir Putin declared a “military operation” in Ukraine.
 
According to market watchers, higher crude oil prices are major headwinds for a couple of sectors including aviation, paint, tyres and oil marketing companies. Brent crude oil has jumped over 30 per cent to $101.40 on a year-to-date basis till February 24. The commodity was at $77.78 per barrel on December 31, 2021.
 
VK Vijayakumar, chief investment strategist, Geojit Financial Services added that if crude prices remain at high levels it can be a major macro headwind for the Indian economy.
 
“Our trade deficit will widen; the rupee will depreciate and inflation will rise. Even if the government absorbs part of the crude spike through excise cuts, part of the hike will have to be passed on to consumers resulting in cost-push inflation. The RBI will be forced to withdraw from the accommodative monetary stance that they have been following since the outbreak of the pandemic. But if the crisis blows over soon, crude will come down the situation will stabilise.”
 
F&O expiry
 
The February derivatives series will expire on Thursday. “We are in monthly F&O expiry week therefore we could see a surge in volatility whereas March is going to be a very volatile month due to lots of events like geopolitical uncertainty, results of state elections, US Fed meeting, etc.,” said Mr. Parth Nyati, Founder, Tradingo.
 
He added that the overall trend is bullish but we may have high volatility over the next month therefore short-term traders should remain light while long-term investors should look at this correction as a buying opportunity.
 
Also, the Russia-Ukraine issue added a negative trigger to the existing overhang of the US Fed likely raising rates in March 2022, added Amar Ambani.
 
“However, we reiterate our bullish stance on Indian equities for the next three years. History has shown us that these wars offer good entry points for investors,” he added.
 
Nifty below 200-DMA
 
Parth Nyati, founder, Tradingo noted that Nifty has slipped below its 200-DMA which may lead to further weakness towards the 16,000 level while 16,400 is an intermediate support level. “We can expect a bounceback from the 16,000 level but confidence will back only if Nifty manages to cross the 17,200 level. If Nifty breaks the 16,000 level then the worst-case scenario could be 14,000 but still, we will remain in a long-term bull market,” he said.

He also further added that Banknifty has also slipped below its 200-DMA where 35,500 is the next important support level while 34,000 is the next major support. On the upside, it has to cross the 37,500 level to gain any strength.
 
Mr. Sameet Chavan, Chief Analyst-Technical and Derivatives, Angel One Limited said, “Nifty has broken down below its crucial support of 16,800 as well as 200-SMA with a huge gap. So, till the time this gap is not filled or we do not surpass 16,800-16,900, the pain is likely to continue. Since it’s happened on the back of geopolitical concerns, the further direction is dictated by the developments with respect to this only.”
 



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