After the initial threats and sabre rattling, the Russian President has commenced military operations in Ukraine. Amidst reports of shelling in eastern Ukraine and the UN Security Council going into a huddle, the response of the US and its allies is awaited with bated breath.

Asian stocks markets that were open when the news broke are all down sharply, with benchmark indices losing between 1.5 per cent and 3 per cent. Dow and S&P futures contracts which are trading now, are down over 2 per cent while Euro STOXX 50 futures is down more than 3.5 per cent. European stock markets seem to be much more nervous since they are in the eye of the storm.

Indian stock market opened with a gap down, and both the Nifty 50 as well as the Sensex are trading over 2 per cent lower. The cut is sharper in small and midcap stocks.

Stock market at a fragile juncture

Indian stock markets have been highly edgy since mid-January. The Nifty 50 is currently down almost 10 per cent from the high of 18,350 recorded on January 18, 2022. The rally that began towards the end of last year came to an end with the US Federal Reserve’s January meeting that indicated that the Fed would start aggressive rate hikes from March and begin sucking out the liquidity from the system. With these moves expected to impact the FPI inflows into the market, the sentiment turned sour. Foreign portfolio investors have been selling incessantly, pulling out $7.4 billion so far this year.

The Russia-Ukraine conflict has only helped exacerbate this weak sentiment in stock markets. A sharp increase in crude oil prices that have crossed $100 per barrel today, along with the rise in prices of other commodities, is expected to impact corporate profitability going ahead. With the interest rate cycle also expected to begin rising soon, given the threat of inflation, the market’s valuation at this juncture may not justify the stiff premium to other emerging markets.

While Nifty50’s trailing PE at 22 times earnings is well off its highs recorded last year, it is still above EM benchmarks such as Shanghai Composite index (14.8 times), Kospi (11.5 times), Bovespa (7.1 times) and so on.

Weak picture on the charts

The Nifty 50 is also quite weakly positioned technically. The index has broken the support at 16,800, defending it over the last few weeks. More importantly, the index has closed below the 200-day moving average line at 16,895. This indicates a long-term reversal. Unless there is a close above the 16,800 level in the next couple of sessions, things may get quite sticky for investors.

The immediate support at 16,400 is trying to support the index for now. It’s to be seen if it holds in this session. Corresponding support for Sensex is at 55,100.