Russia-Ukraine conflict: Markets jump as traders weigh sanctions' impact

Equity markets staged a sharp rebound on Friday as investors assessed the fallout of the Russian invasion of Ukraine and the impact of US sanctions against Russia. The new sanctions were seen as weaker than expected, helping boost sentiment. The retreat in crude oil and other commodity prices also helped soothe investors’ nerves.

The benchmark Sensex rose 1,328 points, or 2.4 per cent, to end the session at 55,858, while the Nifty50 index closed at 16,658 with a gain of 410 points, or 2.5 per cent. In the previous session, both indices had posted their biggest single-day fall in 20 months, crashing nearly 5 per cent. The India VIX index cooled off 16 per cent, after jumping over 30 per cent on Thursday, a sign of improvement in sentiment.

The US and its allies have exempted Russia’s oil exports from sanctions. They also refrained from blocking its access to the SWIFT global payment network.

“Most oil exporters are part of the SWIFT protocol. So the decision not to keep Russia out of it was a relief to investors. All the worst fears related to Russia-Ukraine tensions may have played out. It seems oil prices may have peaked. The only thing left to factor in could be more severe sanctions,” said U R Bhat, co-founder, Alphaniti Fintech.

“The sanctions weren’t as tough as one thought. And the decision to keep SWIFT out of sanctions has taken most of the worries about the economy away. The expectation is that the Ukraine conflict will get over within a week, instead of being a prolonged messy conflict,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.

Some experts called Friday’s market surge a “technical rebound” after seven straight days of losses. Experts said the uncertainty around the Russia-Ukraine war and the soaring inflation and oil prices, coupled with the Federal Reserve’s hawkish pivot, could continue to cap upside for the markets.

“The bounce in the markets being seen today is a counter to the exaggerated reaction we saw yesterday, led by the fears of fully blown-out armed conflict between NATO and Russia. However, as it became obvious that NATO countries have no desire for an armed conflict and would rather use the path of sanctions, the risk perception has lowered marginally globally. From an India perspective, the greater risk comes from the impact of rising geopolitical tensions on crude oil and commodity prices. If crude sustains above $100, it could create a negative economic impact in the form of rising inflation and a deterioration in the current account deficit,” said Nitin Raheja, executive director, head – discretionary equities, Julius Baer.

The latest geopolitical developments have added to the tense situation faced by equity investors this year. India’s benchmark indices have dropped nearly 10 per cent from this year’s peak.

Some experts said the flare-up in geopolitical tensions and its impact on global growth might persuade central banks, including the US Federal Reserve, to tone down its plan to hike rates, which could be a positive for the equity market.

Most global markets rose on Friday following a sharp reversal in the US markets overnight. Also, a variety of crude futures fell 10 per cent from the day’s high, and gold reversed some gains, while the dollar and the yen retreated.

All but two Sensex components ended with gains. Tata Steel gained the most at 6.5 per cent, followed by IndusInd Bank and Bajaj Finance, which gained 5 per cent each. All BSE sectoral indices ended with gains. Metal and realty indices surged the most at over 5 per cent each.