War, state poll results to weigh on Dalal Street

Mumbai: The risk aversion among investors could heighten in the days ahead with the war between Russia and Ukraine showing no signs of ebbing that has led to prices of global commodities from oil to farm products shooting through the roof. Overseas investors are pulling money out of India at a faster pace amid uncertainty over the impact of inflationary pressures on the economy and corporate profits, making the markets vulnerable to further downsides. Aside from geopolitics, investors will watch the outcome of the crucial state elections including Uttar Pradesh, Uttarakhand, Punjab, Goa and Manipur on March 10.

The performance of Bharatiya Janata Party (BJP) in these elections mainly in UP will be an indicator of the ruling party’s popularity after Covid. Though the focus on the markets will be the Russia-Ukraine conflict and its ramifications, investors will be relieved if the results do not point to any political instability.

Analysts said the Nifty could crack below the 16,000-levels this week if foreign fund selling intensifies. On Friday, the index closed at 16,245.35, posting weekly losses of 2.5%. The index has managed to stay above 16,200 – considered a key support – thanks to purchases from domestic institutions. But technical indicators are pointing to further weakness.

“The ‘Lower Top Lower Bottom’ structure continues on the daily charts and the momentum oscillators too are pointing at weak momentum,” said Ruchit Jain, lead research at retail brokerage 5paisa.com. “The stronger hands (FPIs) have continued their selling streak in the cash segment and in derivatives too they formed bearish positions.”

Foreign Portfolio Investors (FPIs) have stepped up their selling in India, pulling ₹10,567 crore out of Indian stocks in March so far. Since January, they have sold to the tune of ₹84,231 crore, resulting in the Nifty declining 6.4% in the period. But for domestic institutional purchases to the tune of ₹76,612 crore in this period, the losses in the market would have been much worse.

“We are getting hit from all sides,” said AK Prabhakar, research head, IDBI Capital. “High oil and other commodity prices will have an impact on demand and company margins. This level of foreign selling is making it difficult for us to even guess the market bottom.”

Commodities saw their best weekly surge since 1974, according to Bloomberg. Oil prices shot up on concerns sanctions on Russia will squeeze supplies. Brent crude gained 6.9% to $118.11 a barrel on Friday. Stoxx Europe 600 plunged 3.6% after Russian forces took control of Ukraine’s Zaporizhzhia nuclear power plant, Europe’s largest facility. US stock indices fell 0.5-1.7% after stronger-than-expected February jobs data, cementing the case for interest rate increases in March.

US Federal Reserve Chairman Jerome Powell earlier last week had told lawmakers that he would support an rate increase of 25 bps at policy meeting on March 15-16. The Fed chief said he was ready to raise rates more frequently if inflation does not slow. Concern that the Fed might resort to aggressive monetary policy tightening was the reason for the start of the risk off mood in emerging markets, including India. The Russia-Ukraine conflict has aggravated this sentiment.