Four factors weighing on markets as Nifty, Sensex plunge 3% to enter correction zone
Indian stock market indices crashed as much as 3% on Thursday, stretching their losses to 10% from their peaks a few months ago and entering the correction zone, thanks mainly to geopolitical developments.
The 30-stock BSE Sensex fell nearly 2,000 points to touch a low of 55,147.73, before slightly paring the losses. The Nifty 50 declined by a similar level to trade around 16,570.20. All 30 Sensex stocks were in the red while only one of Nifty’s 50 constituents—Hindalco—managed to stay in the green.
In the broader market, there was only one gainer for every 11 stocks that rose on the BSE. While more than 200 stocks touched a 52-week low, around 625 stocks hit their lower circuit, stock-exchange data show.
Here are the key reasons why the markets slumped on Thursday.
Russian launched a military offensive in Eastern Ukraine on Thursday and bombarded some cities in the former Soviet republic, pummelling stock markets worldwide.
Russian President Vladimir Putin claimed in a televised address the action came after threats from Ukraine. He also said that Russia doesn’t intend to occupy Ukraine and warned other countries not to interfere. It is not yet clear how the US and the North Atlantic Treaty Organisation (NATO) would react to Russia’s action, apart of imposing sanctions.
Crude oil boils
While the Russia-Ukraine crisis hurt stock markets, it also pushed global crude oil prices past $100 per barrel for the first time since 2014. Crude oil supply could suffer if the US and other countries impose sanctions on Russia, a key exporter. This is bad news for India, which imports nearly 80% of its crude requirements.
Higher crude oil prices would not only widen India’s trade deficit but would also put pressure on inflation, which is already trending above the Reserve Bank of India’s comfort zone. This is a test also for the Narendra Modi government since crude has crossed $100 a barrel for the first time since he became prime minister in 2014.
Foreign institutional investors, or foreign portfolio investors, have been net sellers in Indian equity markets for the past few months. So far in 2022, FIIs have been net sellers to the tune of $7.3 billion in equity markets. This takes their total net sales since October, when markets touched a record high, to $12.4 billion.
The February derivatives series is expiring on Thursday, adding to the volatility in the markets. The India VIX index jumped to 30 points, up 21%, to its highest level since the March 2020 crash.
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