Stocks bounce back, but volatility to stay
Premium- Conflict in Ukraine reduces chance of a Fed rate hike in relief for investors
MUMBAI : Indian stocks on Friday recouped some of their steep losses from the previous day, riding a recovery in global markets, even as the events in Eastern Europe kept investors on edge.
The Sensex and the Nifty rose 2.44% and 2.75%, respectively, after plunging nearly 5% on Thursday when Russian president Vladimir Putin sent tanks, troops and missiles into Ukraine.
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Despite heightened uncertainties, the energy sector has been largely unscathed, and sanctions against Russia have not been as hard as expected, experts said.
The events also have reduced the chances of an aggressive rate hike by the US Federal Reserve in its March meeting, as anticipated earlier. Besides, the US and NATO have not spoken of sending their soldiers to Ukraine, potentially avoiding an escalation in the conflict.
Experts said this helped a rebound in global equities after Thursday’s panic selling.
Asian markets such as Japan’s Nikkei, Taiwan’s Taiex, Jakarta Composite and Shanghai Composite indices closed up 0.33-1.95% on Friday. Only Hong Kong’s Hang Seng Index closed 0.59% lower.
Crude oil prices cooled slightly as well, aiding equities. Brent prices, which surged to seven-year highs of close to $105 a barrel on Thursday, were trading at $99 a barrel levels on Friday.
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“The markets recovered some of the losses today as the sanctions were not as severe as feared and value buying emerged," said Joseph Thomas, head of research at Emkay Wealth Management. However, he expects geopolitical developments to continue to direct investor sentiment and keep the markets volatile in the coming week.
“Uttar Pradesh election results, LIC IPO and the Fed meeting on interest rate hikes will continue to be important events going forward. Against this backdrop, volatility in global and local markets will remain elevated," said Vaibhav Sanghavi, co-chief executive officer at Avendus Capital Public Markets Alternate Strategies LLP. Sanghavi expects volatility to continue till March, with some stability returning only later.
High crude prices, though, remain a key concern as far as India and most Asian markets are concerned. Costly oil may drive inflation and force the Reserve Bank of India to change its dovish stance, impacting markets.
“We consider the Philippines and India the most sensitive markets due to high oil import bills and above-average inflation. Assuming prices do not spike much more from here, we keep our ‘Overweight’ in India on expected EPS and GDP upgrades," Credit Suisse analysts said in a report.
Volatility will stay until there is a clear direction to markets, said Neeraj Chadawar, head of quantitative equity research at Axis Securities. In the near to medium term, geopolitical developments and other macroeconomic factors such as inflation and the US Fed decision on the interest rates and state election results are key events that could drive market performance, Chadawar said.
On the positive side, rate hikes being less aggressive than feared could be positive for Indian markets.
“We expect the consequences to translate into a somewhat less hawkish stance from major central banks—tilting the Fed towards a 25 basis points hike in March and keeping the ECB on the fence," said Invesco analysts said in a report.
On Friday, foreign institutional investors continued to be net sellers, having sold ₹65,096.17 crore worth of equities till 24 February, while domestic institutions bought ₹55,551.41 worth of equities. Provisional figures on the BSE for 25 February indicated FII sales at ₹4,470.70 crore, while DIIs bought shares worth ₹4,318.24 crore.
“Participants shouldn’t read much into a single-day rebound and wait for further clarity. The looming uncertainty over the geopolitical tension, combined with rising crude, would keep the participants on edge in the following sessions," said Ajit Mishra, vice-president, research, Religare Broking Ltd.
The rupee gained some strength, rising 0.48% to 75.29 against the dollar. However, experts said further depreciation in the Indian currency cannot be ruled out.
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