Indian equity markets have been quite volatile in the recent past due to changing outlook on interest rates by major global central banks, led by high inflation. Now it’s the turn of the Russia-Ukraine crisis.
Domestic benchmark indices—Nifty50 and Sensex—today tanked nearly 2% each to 16,970.80 points and 56,876.85 points, respectively.
India VIX, which measures expected volatility in the equity market, jumped to 27.2, the highest in over a year when it was at an intraday high of 28.14 on February 21, 2021.
On Feb. 21, Russian president Vladimir Putin formally ordered troops into breakaway regions of eastern Ukraine, leading to a war-like situation on the continent.
Geopolitical developments have prompted foreign portfolio investors, too, to trim Indian assets off their portfolios.
Since Feb. 16 alone, the investors’ wealth, measured by the total market capitalisation of BSE-listed companies, has declined by 9.1 lakh crore rupees ($121 billion).
For Indians, the crisis is likely to strain household budgets in the coming days as crude oil prices have spiralled up to $96.7 per barrel, the highest mark since September 2014. This may result in further price pressures building up.
With current geopolitical tensions, analysts expect crude oil prices to very well exceed the $100/barrel-mark, even in the absence of a full-fledged invasion. In a prolonged scenario of uncertainty, oil prices can easily shoot to $115/barrel, John Driscoll, director of JTD Energy Services, told CNBC.
“The situation is very fluid; if a response from the West is very swift and sharp then it will lead to further problems and rising crude prices is certainly a major headwind for India as it has an inflationary consequence,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.
The “inflationary consequence” of such sort is likely to force the Reserve Bank of India to abandon its dovish monetary policy stance and quicken the pace of interest rate hikes.
Analysts believe the plunge in stock indices is a good opportunity to build a long-term portfolio of companies that are capital-efficient and have promising growth prospects.
Parth Nyati, founder of online stock trading platform Tradingo, is “very bullish” on capital goods, infrastructure, real estate, banking, consumer goods, and auto ancillaries space.
“…Buying opportunities may emerge in this correction. But investors need not rush in to buy. The situation is fluid. FIIs are likely to continue selling. This will continue to depress the prices of some high-quality financials,” Vijayakumar said.