D-Street edgy on possible sanctions against Russia

Indian shares could recover on pre-election buying frenzy, say analysts

Domestic shares are likely to open flat-to-subdued on Tuesday, taking cues from the Asian markets, which weakened moderately after the Crimean region in Ukraine voted on Sunday to join Russia. Asian markets such as Japan and Hong Kong fell while China ended flat and South Korea rose marginally on Monday as investors awaited sanctions against Russia by Western countries. Indian markets were closed on Monday on account of Holi.

If the sanctions are severe, investor sentiment is expected to remain nervous about the developments in the Crimean region, which could lead to a flight of capital from emerging markets such as India, analysts say. Also, a spike in oil prices on account of the geopolitical tension could add to the worries as Russia is the world's biggest oil producer.

"This could invite sanctions against Russia by Western countries, which could have an impact on oil and gas supplies. There could be bigger repercussions on equity markets and India could get caught in that," says U R Bhat, managing director, Dalton Capital. Brent crude rose on Monday by about 1 per cent while gold hit a six-month high.

European stocks and US index futures gained on Monday even as the European Union and the US government challenged the legitimacy of the referendum which gives Crimea the choice to join Russia or remain an autonomous region of Ukraine. Exit polls showed that 95 per cent of the region had voted in favour of joining Russia. Analysts said that any impact on European and US stocks would depend on the support lent by EU member countries to the EU and US stand against the referendum.

But, losses in India could be short-lived. Sentiment surrounding India has continued to be robust as overseas investors increase holdings in anticipation of a favourable outcome in the national elections to be held in April and May this year.

According to technical analysts, foreign institutional investors (FIIs) have been creating a large number of long positions on index futures for the past two weeks.

"We are not bearish on the market at all. The quantum of long positions being created by FIIs is huge and such positions are not created for short-term gains but with larger returns in mind," says Siddharth Bhamre, head of derivatives at Angel Broking. Investors expect a BJP-led stable government at the Centre after the elections.

Last week, benchmark indices ended about 0.5 per cent down after touching record highs on Tuesday. The BSE Sensex touched 22,023 while the NSE Nifty touched 6,562. FIIs were net buyers last week at Rs 2,506 crore, including Friday's provisional exchange data. The BSE Sensex ended the week at 21,809. The NSE Nifty closed at 6,504.

For the week ahead, analysts say the Nifty is unlikely to fall below 6,350 levels and could move up to 6,700 levels.

Gains in the indices would be led by sectors that have been witnessing buying for the past few weeks, participants said. A portfolio churn by FIIs has been pushing up stocks in the banking, capital goods and infrastructure sectors.

"There is a definite sectoral shift happening and markets are in 'buy-on-dips' mode. The money supply is coming in and investors are taking positions before the elections," says Sudhakar Ramasubramanian, managing director, Aditya Birla Money.

"This is likely to continue as investors expect to see a revival in the policy reform process once a new government is in place," he says.

Participants will continue to watch out for stocks in the technology and health care sectors, which have been seeing some profit-booking. Last week, Infosys fell by about 9 per cent in one session after the company management lowered the growth guidance for the March quarter.

Experts believe that the only concern for the market at this point is the stand-off between Russia and Ukraine. Domestic data such as inflation and industrial production, which have shown marked improvement over the past couple of months, will have limited impact.

"These data points will have a marginal impact on the markets as all the good news has already been factored in. For now, the situation in Crimea is a bigger concern," says Bhat.