Equities slip to 7-month low as oil hits new high

Oil prices are already up more than 60% this year and a further surge could threaten recovery in India, which relies on imports for over 80% of its crude requirement.

Manic Monday saw the Sensex ending below the 53,000 mark and the Nifty falling below a strong support of 15,800 as oil prices soared over 10% on the risk of a US and European ban on Russian oil supplies as well as delays in talks on the Iranian nuclear accord. Investors also preferred to remain on the sidelines ahead of exit polls in five states, including the most populous one, Uttar Pradesh.

FPIs Sell Shares worth ₹7,482 cr

All this happened in the midst of intermittent price update issues in the early part of the day at India’s biggest stock exchange, the NSE, which were resolved later. Votes in the state elections will be counted on March 10.

Feeble attempts at buying into the oversold market proved unsustainable. The 30-stock Sensex dropped 1,491.06 points or 2.7% to 52,842.75, while the Nifty ended 382.20 points or 2.35% down at 15,863.15. The Asian markets ended 2-4% down on Monday while the European markets fell 1-3% in mid trade.

Foreign portfolio investors offloaded Indian shares worth Rs 7,482.08 crore on Monday while domestic institutional investors bought shares worth Rs 5,331.03 crore.

“If the conflict continues, it could mean recession for Europe and possible stagflation for the US. The markets won’t like either situation as surging fuel and food prices could hit disposable incomes,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies. “The big support level is around 15,600-15,650 and we are not far away from that. I suspect the markets feel there is more to come–Russian forces have not got Kyiv yet.”

BIGGEST LOSERS

Top financial companies and auto makers were the biggest casualties on the Sensex, with IndusInd Bank, Axis Bank, Maruti Suzuki India, the Bajaj twins, and Mahindra & Mahindra ending between 6% and 7.6% down. State-owned Oil and Natural Gas Corp. (ONGC) surged 13% as it benefits from the surge in crude oil prices.

The Sensex and Nifty are down about 14% from their lifetime high levels hit last October.

The Nifty remains below important technical levels that were breached recently.

“As long as price action remains below 17,000-17,080, the risk remains to the downside… supporting a downside target around the 15,430-15,524 area,” wrote CLSA chief global technical analyst Laurence Balanco in a recent note. “Below this target level, the next chart support is provided by the lower boundary of the first quarter of 2021 trading range at the 14,225-14,261 area.”

The gauge tracking smaller companies is already in a bear market, with the Nifty SmallCap index now more than 20% down from its peak levels.

ince February 24, when Russia launched a “special military operation” in Ukraine, the market capitalisation of all listed companies on the BSE has dropped by Rs 18.6 lakh crore.

EXPERT ADVICE

Money managers warn against aggressive purchases in this sell-off.

“It is tempting but if individual investors have cash now, they should refrain from investing heavily in individual stocks and wait for the conflict to pan out,” said Holland. “Being on the sidelines is probably a conservative but right thing to do as things can turn positively or negatively very quickly.”

With the invasion likely to keep oil prices at high levels, analysts expect the Indian economy to face a higher inflation risk and corporate earnings to take a hit.

“The Russian invasion of Ukraine and likely lower exports of Russian crude oil will keep crude oil prices elevated for a protracted period. We estimate the Indian economy to incur an additional $70 billion burden versus FY2022 levels at an average crude price of $120/barrel,” said Kotak Institutional Equities. The broking house sees meaningful upside risks to inflation and downside risks to corporate profits through increased pressure on margins as well as volumes.