Peacetime may not return to Dalal Street soon

Mumbai: Investors are finding little reason to be optimistic on Indian equities in the coming week on continued uncertainty over the Russia-Ukraine conflict, multi-year high oil prices and the prospect of a more aggressive policy tightening by the US Federal Reserve in March. With tensions building up on account of Russia’s army build-up near the Ukraine border, the mood in the market is jittery as traders will watch if the Nifty is able to hold above a key support of 17,000 in the coming days.

On Friday, US stock indices dropped 0.7-1.2% due to geopolitical tensions. Analysts expect Asian markets to follow suit on Monday.

“The overall chart pattern of Nifty, broad market indices like mid- and small-caps are showing a negative trend and more weakness could be in store,” said Nagaraj Shetti, senior technical research analyst at HDFC Securities.

On Friday, the Nifty ended at 17,276.30, down 28.30 points, or 0.16%. The Sensex ended down 59 points, or 0.1%, at 57,832.97. The Nifty fell 0.6% last week and underperformed most Asian peers except Japan, Hong Kong and China.

“Formation of lower tops, weak upside bounce from the important support of uptrend line and negative overall chart patterns are pointing towards downward correction in the market,” said Shetti.

Western powers have been piling pressure on Moscow to deter Russia from invading Ukraine though their leaders have been warning of an imminent attack. British Prime Minister Boris Johnson told BBC on Sunday that evidence suggests Russia is planning “the biggest war in Europe since 1945.” US President Joe Biden said on Saturday the US had reason to believe that Russian forces were “planning to and intend to attack Ukraine in the coming week, in the coming days.”

“Market players will keep a careful eye on developments in the Russia-Ukraine situation, and given the inflation overhang, they will also pay attention to movements in energy prices,” said Yesha Shah, research head at Samco Securities.

Brent crude on Friday closed 0.6% higher at $93.54 a barrel amid simmering geopolitical tensions. Earlier last week, crude rose to $96.16, the highest since October 2014, but eased after Russia said some of its military units were returning to their bases after exercises near Ukraine. Russia is one of the biggest oil producers and any supply disruption could result in prices shooting up further. For India, elevated oil prices is bad news as it imports over 80% of its crude requirements.

Brokerage Edelweiss said it does not expect “even a local conflict of any meaningful scale” emerging out of these geopolitical tensions.

“Worse case, Russia will initiate localised aggression and bring the western world on the negotiation table extracting a concession that NATO will not invite Ukraine for 3 or 4 decades to join them,” said Edelweiss in a note to clients.

Edelweiss said the global set-up currently mirrors that of the 2018-19 period which saw a global slowdown and pain in emerging economies. A more dovish Reserve Bank of India and a stronger financial system should , however, help limit the pessimism on account of global events, it said.

Foreign investors have sold nearly ₹12,600 crore worth of Indian stocks in February so far with the markets pricing in an interest rate hike of as much as 50 basis points in March. So far in calendar year 2022, these investors have sold about ₹48,500 crore worth of Indian shares.