Mumbai: It was a ‘terrible Tuesday’ morning for Indian equities with the benchmark indices crashing more than 2 per cent at the opening bell after Russia recognised two rebel-dominated regions of Ukraine, escalating the simmering crisis that has scorched markets across the world for the past several days.
The tsunami triggered by heightened tensions and news of imminent war has eroded the market capitalisation of BSE-listed companies by a mammoth Rs 9.1 lakh crore over a period of only five days. February 16 was the last day when the Indian markets had closed in the green but since then the fall has been continuous.
On Tuesday, the 30-pack BSE Sensex opened with a loss of 1,245 points at 56,439, while the Nifty tanked 359 points to breach the crucial 17,000 levels and opened at 16,848. All other Asian indices were down more than 1 per cent during the day.
All the sectoral indices on the NSE were down with Media and PSU banks being the biggest losers. The broader markets were also trading losses of 1.2 to 2.2 per cent.
India VIX, which indicates the degree of volatility traders expect over the next 30 days, jumped significantly by 17.5 per cent from 22.9 to 26.9 levels.
“Safe havens have rallied overnight. Yields on US treasuries have dropped about 7-8bps at the longer end. There is a chance that the Fed may recalibrate its tightening plans given the risks to growth from geopolitical tensions,” said the brokerage firm IFA Global in its morning note on Tuesday.
The biggest macro headwind for India is a rally in crude prices. The inflationary consequence of this will force the Reserve Bank of India to abandon its dovish monetary stance. Crude oil has surged about 3.5 per cent to $97 per barrel, while gold has crossed the $1,900 mark amid risk aversion.
“The economic consequences are visible in higher crude and gold prices and the situation remains fluid with uncertainty around whether the tensions will escalate or be contained from now on,” VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.
Experts suggest that since this is the monthly F&O expiry week, a surge in volatility may arise and they expect March to be even more volatile due to events like geopolitical uncertainty, results of state elections, and US Fed meeting.
Shares of companies with significant exposure to Europe came under pressure.
Shares of Tata Motors, Tata Steel, JSW Steel, Motherson Sumi Systems, Varroc Engineering, Endurance Technologies, Dr Reddy’s Laboratories, and Bharat Forge declined 2-4 per cent during the current session.
Auto ancillaries such as Varroc Engineering, Motherson Sumi, and Endurance Technologies have 30-60 per cent of their topline exposed to the European market. Bharat Forge is also a major supplier of components to truck manufacturers across Europe.
The tension around Russia-Ukraine has become an additional headache for Indian auto ancillary companies who have been hit by the decline in demand from the original equipment manufacturers in Europe due to a semiconductor shortage. Tata Motors subsidiary Jaguar Land Rover has a major market in Europe, which is its biggest after the US and China. Similarly, Tata Steel’s European business could also come under threat because of the ongoing tensions in Ukraine and its reverberations on the rest of Europe.