Russia’s invasion of Ukraine has put global financial markets into a tailspin as investors panicked over the possibility of a full-fledged war. Thursday’s fall in BSE Sensex and Nifty 50 was the largest in percentage terms in two years, bringing back the memories of the bloodbath the market witnessed during the first wave of the Covid pandemic.

While the Sensex crashed by 4.72 per cent (2,702 points) to close at 54,529, the Nifty, too, plummeted 815 points (4.78 per cent) to close at 16,274. Nifty futures positions, mainly the bearish bets, hit 1.79 crore outstanding contracts during the day, the highest in two years.

Things were not different in the money markets as well. The rupee slumped about 113 paise intraday to the dollar, even as crude oil prices topped $105 a barrel. The last time the currency tanked over 100 paise intraday was on April 7, 2021. 

Global picture

Market benchmarks in Europe and Asia, too, fell by more than 4 per cent as traders tried to figure out how large Putin’s incursion would be and the scale of Western retaliation. Moscow’s stock exchange briefly suspended trading on all its markets, but tumbled 0.16 per cent after reopening. The ruble, too, crashed more than 9 per cent on the currency markets indicating Putin’s actions did not go down well with investors in his own country.

“Post imposing sanctions, if other nations don’t attack Russia, it is possible that markets will stabilise in the next 3-4 days. God forbid if war happens, it could be a trigger point for FIIs to come back and buy in Indian equities as valuations become attractive. In either situation, don’t panic,” said market veteran Deven Choksey, MD, KR Choksey Investment Managers.

‘Extreme panic’

As panic struck, market regulator SEBI postponed its stringent margin requirement norms to May. The new norms, wherein margin of each client was to be segregated at the broker and clearing corporation level, were to be implemented from February 28. SEBI said it had received a request to postpone, which experts say was due to systems and processes not being in place.

“There is extreme panic in the markets, which is equivalent to March 2020 Covid times. But history shows that when gunshots are fired, markets bottom out. On the day the war started, be it the Gulf war or the US war on Iraq and so on, the markets bottomed out and moved only higher from those levels. Since there is too much fear, nobody wants to think about any bottom. Also, nobody is looking at levels as of now as too many key resistance for the Nifty were broken on Thursday,” said Rohit Srivastava, strategist, India Charts.

Foreign portfolio investors (FPIs) have been selling aggressively in the Indian markets for the past several months. In the cash segment, FPIs have sold stocks worth nearly $5 billion so far. But in the index and stocks futures, they have been net buyers to the tune of 6,132 crore and R12,186 crore, respectively, indicating short covering.

Impact on domestic inflation

The rupee ended the session about 99 paise weaker to close at 75.60 per dollar, against the previous close of 74.615 in the backdrop of heavy selling by FIIs in equity markets and importers rushing to cover their payables. 

RK Gurumurthy, Treasurer, Dhanlaxmi Bank, said: “The monthly volatility is at the highest level in the last two-three years. Market moved sharply intraday between yesterday and today.” Moreover, with crude oil hitting $105 a barrel, importers will start covering off unless they are hedged, he added.

Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research, said with crude oil prices likely to stay above $100 over the near term, it will have an impact on the domestic inflationary scenario where there are already significant undercurrents due to increasing pass through of higher commodity prices. “While the government can partly alleviate the pressures through a further cut in excise duties of retail fuels, input costs are set to increase further for sectors such as paints, chemicals, plastic products, transport and aviation in the near term,” Chowdhury said.