Global stocks continued to swoon over developments in Eastern Europe as Russia’s move to send troops to two separatist-backed regions in Ukraine forced investors to dump risky stocks.
The risk-off sentiment spread to India with benchmark indices witnessing wide fluctuations and ending with losses of nearly 1 per cent.
The 30-share Sensex plummeted almost 1289 points in intra-day trades, amid rising fears that the West would retaliate with economic sanctions against Russia. The bellwether, however, recovered some ground to end with losses of 382.91 points and close at 57300.68. The NSE Nifty clawed back some of its losses to close 114.5 points or 0.67 per cent lower at 17092.20.
In spite of the recovery, the mood was cautious with market circles pointing out that equities were likely to correct further because of a bunch of negative factors such as elevated crude oil prices and central banks tightening their monetary policies on account of rising inflation.
On Monday, Russian President Vladimir Putin recognised two regions of Ukraine — Donetsk and Luhansk — and sent troops to the two regions leading to fears of a Russian invasion of Ukraine. The move prompted the UK to announce sanctions against five Russian banks and three high net-worth individuals.
For India, one of the biggest fear of the standoff is the crude oil price and its impact on inflation.
“Just when the global economy is beginning to recover and normalise from the impact of the pandemic, Russia has recognised the independence of separatist regions in Ukraine thereby inviting the possibility of severe sanctions being imposed by the US and the EU. Today’s trade saw selling pressure across several pharmaceutical & auto ancillary companies with exposure to the EU,” S. Ranganathan, head of research at LKP Securities, said.
Reflecting the volatility, the India VIX jumped over 21 per cent during intra-day trades. At the close, it finished higher by 16.42 per cent.
In the Sensex chart, Tata Steel, TCS, SBI and Dr Reddy’s Laboratories fell the most, losing as much as 3.64 per cent.
Of the 30 Sensex constituents, 20 closed in the red. The broader market also took the pressure with the NSE mid-cap 100 falling over one per cent and the NSE small-cap 100 cracking 2.05 per cent.
Market watchers said the downside was limited as Russia is unlikely to go in for an all-out invasion. They said it had been seen in the past that markets globally tend to overreact to geopolitical events.
“After the Iraqi invasion of Kuwait, the global markets fell but later regained its level within the next six months. In this situation, we think that the key transmission mechanism is not via economic contagion but via commodities,” Motilal Oswal of Motilal Oswal Financial Services, said.
“Central banks would not change policy unless the rise in commodity prices were to cause a sharp downturn in global growth,” he said. If Russia were to go for a limited incursion, the domestic markets may fall 5 per cent. But it could crash 10 per cent if there is a full-scale invasion, he added.
Amid the geo-political tensions, investors took refuge in safe haven assets such as gold resulting in international prices of the yellow metal rising to $1910 a troy ounce, its highest since June 2021.
Gold prices in the national capital on Tuesday jumped Rs 552 to Rs 50,518 per 10 gram. Silver shot up Rs 1,012 to Rs 64,415 per kg.