Geopolitical tensions and global inflation worries haunted India’s stock markets on Wednesday (February 22) with the benchmark Sensex plummeting 1.53 per cent or 928 points, to close below the 60,000 level at 59,744.98. The NSE Nifty index fell 272 points to 17,554.30 in a broad sell-off across all sectors.
Worries over inflation and Ukraine war
Panic was seen across equities globally, including in India, ahead of the release of the minutes from the last US Federal Reserve meeting.
While the key US macro data pointed towards a stronger economy, inflation continues to remain stubbornly high. There is increasing fear that the Fed may remain hawkish for a longer duration than expected, which may force RBI too to keep interest rates high.
Statements from the Russian and US Presidents on February 21 indicated no respite in geopolitical tensions or an end to the war, and brought further uncertainty to equity markets, Siddhartha Khemka, Head of Retail Research, Motilal Oswal Financial Services, said.
The escalation in the geopolitical developments involving Ukraine and Russia is likely to impact the global markets in the short term, said another analyst.
Wall Street fall triggers domino around the world
The pace of decline was gradual until Tuesday but a sharp cut in the US markets changed the tone. The Dow Jones index at the New York Stock Exchange fell by 2 per cent on Tuesday, setting the stage for the return of bears across global markets, including India.
The benchmark 10-year US Treasury yield climbed to 3.9 per cent, while the 2-year rate advanced to 4.7 per cent. Both rates also reached levels not seen since November, as markets grappled with the possibility of elevated inflation levels.
Traders are worried that stubborn inflation will lead the Fed to keeping rates higher for longer, which could push the economy into a recession.
Indian stocks came under selling pressure
On Wednesday, after the weak start, the Nifty gradually drifted lower as the day progressed and slipped below the support zone of long-term moving average (200 EMA) on the daily chart as well.
“The pressure was widespread wherein continuous decline in the banking heavyweights combined with a further dip in the IT and energy majors were largely weighing on the sentiment. In line with the trend, the broader indices shed over a per cent each,” Ajit Mishra, VP-Technical Research, Religare Broking Ltd., said.
Impact of global factors on Indian situation
If inflation remains at elevated levels in major developed countries, it will have ramifications in emerging markets like India. As inflation and interest rates are global phenomena, any rise in inflation and interest rates will impact India.
The Fed is expected to increase interest rates further to tackle high price levels. If inflation remains high, the RBI will have to hike repo rates again to rein in prices. It has already hiked rates by 250 basis points to 6.50 per cent since May 2022.
What should investors do in this situation
Analysts said investors should ignore short-term gyrations and focus on slowly accumulating high-quality growth stocks, which will bounce back smartly when the present situation changes.
“Indian economic growth prospects continue to remain strong and all domestic demand driven sectors will continue to do well going forward,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.