The twin benchmarks extended their losses, with the Nifty and Sensex shedding 1.53% and 1.4% respectively. Other major Asian markets, including Nikkei, Taiwan, Shanghai Composite and Hang Seng, closed down 0.96-2.5%.
Concerns about high oil prices also made investors nervous. Crude oil continued to trade near recent highs, with the benchmark Brent index recently touching $120 a barrel. Rising crude prices are also putting pressure on the rupee, as India imports more than 80% of its oil needs.
“Crude is the main headwind for the Rupee, the stock market and the economy right now. Currency depreciation is driving imported inflation, forcing the RBI to abandon the accommodative monetary stance. result will have a negative impact on economic growth,” said VK Vijaykumar, chief investment strategist at Geojit Financial Services.
The rupiah extended its losses, depreciating 0.34% to 76.17 to the dollar.
“We expect the Rupee to depreciate further towards the 76.44 levels if the pair (currency) holds above 76.10. The levels around 75.50 are a major support,” according to the currency office of Emkay Global Financial Services Ltd.
The Russian-Ukrainian conflict hurts the rupiah, bonds and stocks through all three channels of oil prices, the dollar index and global stock prices, said Anindya Banerjee, assistant vice president, foreign exchange derivatives and interest rate derivatives at Kotak Securities Ltd. Brent crude hit a high of around $120 this week at the highest level since 2012. “Oil prices are showing signs of fatigue and have retreated $120. If Oil continues to decline, it will be positive for the Rupee, but barring a drop below $100, any pullback can be seen as a consolidation within the larger uptrend,” Banerjee added.
Foreign institutional investors (IFIs) remained net sellers, although domestic institutional investors (IDIs) continued to support the markets.
FIIs have sold ₹84,250.82 crore shares through March 3, while DII bought ₹71,873.41 crore shares. Provisional BSE figures from March 4 showed FII sales at ₹7,631.02 crores of shares while DII bought ₹4,739.99 crores.
“Domestic institutions have captured 50% of FII sales in spot markets. Reflecting the strong commitment of domestic institutions and their positive outlook on India,” said Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities Ltd.
However, analysts said volatility is expected to remain elevated due to heightened geopolitical risks. Upcoming state election results, the US Federal Open Market Committee meeting and accelerating inflation will keep investors on their toes.
Rising inflation is a major concern. Analysts said that with rising commodity prices, companies that rely heavily on them as raw materials would struggle with rising prices and falling currency, which would impact their operating metrics. .
“Business confidence among manufacturers and service providers remains subdued, due to continued rising inflationary pressures,” according to Acuity Ratings & Research Ltd, as the ratings agency assesses growth prospects for the India may not have a strong link to emerging geopolitical risks, the tightening of sanctions against Russia may disrupt global commodity markets and supply chains for certain products, which indirectly affects supply and aggravates inflationary pressures.
Although short-term concerns remain high and volatility is expected to continue, the sharp corrections have made Nifty’s valuations attractive.
“After the recent correction, the Nifty is trading at 19X the 12-month futures price to earnings, which is below its 10-year average for the first time since November 2020,” said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Despite the challenges, earnings remain resilient, with Nifty’s December quarter earnings rising 25% and forward estimates remaining flat, Khemka said. This will act as a cushion in a the otherwise fragile external situation, and the recent correction has led to moderation .
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