Investors lost Rs 6.5 lakh cr in 2 days on oil, geopolitical tensions. What's next?

NEW DELHI: Investors lost Rs 6.5 lakh crore in wealth in a two-day drop on Dalal Street that sent the BSE benchmark Sensex tumbling over 1,400 points to sub-60,000 levels on Wednesday.

The BSE benchmark tanked 800 points in Wednesday's trade, and at its low, it was down 1,432 points over Monday's high of 61,385.48. During this two-day selloff, investors have lost Rs 6,50,865 crore in wealth, with the combined market value of BSE stocks declining to Rs 2,73,51,571 crore from Rs 2,80,02,438 crore on Monday.

Inflation globally has been rising beyond market expectations. There has been a sharp spike in US 10-year yield to a 2-year high of 1.89 per cent, as investors fear a US Fed intervention in the form of a rate hike as early as March.

Adding to woes is a rise in oil prices to a seven-year high after attacks on UAE oil tankers. Goldman Sachs expects oil prices to hit $100 per barrel in the second half of this year, citing a lower than expected hit to demand from the Omicron variant coupled with increased supply disruptions and OPEC+ shortfalls.

Russian troop buildup on the Ukraine border and the probability of an invasion of Ukraine is an emerging geopolitical issue that can hit the market in the near future.

Hemang Jani of Motilal Oswal Securities said that the global set-up is a bit adverse for the domestic market due to a combination of factors such as interest rates inching up and crude prices going up to $86-87, which is also getting reflected in the way global markets and global equity flows are getting reversed.

"Having seen a very smart run-up in the last 15-20 days, you are faced with such adverse data points. Clearly, there is a case for some sense of caution or consolidation in the market. Having said that, we have navigated many difficult data points extremely well in the last 15 to 18 months. Small corrections that we are seeing in the market have been in the 5-10 per cent range and are being bought ferociously. As long as we do not see any negative trend on the overall earnings picture, the overall structure of the market will continue to be positive," Jani said.

Vikash Kumar Jain of CLSA said that historically crude prices going up is an indication of risk-on sentiment. When crude prices go up due to demand picking up, Indian markets do very well, he said.

"Also, if you were to compare where we are versus say 10-12 years back, the thing is crude is no more that big a problem for the fiscal deficit because subsidies are clearly out of the window now. So that big worry is gone. Yes, there is a current account worry, but to our understanding, the RBI's current forex surplus is at a level where it can easily fight any big speculative attack on the rupee," Jain told ET NOW.