Markets slip as Ukraine tensions heighten

Oil prices surge on fear that crisis may choke supplies; Re resilience, PMI contain fall in India

Indian shares dropped on Monday, mirroring weak sentiment globally, as oil prices advanced over concerns that the escalating geopolitical tensions due to a crisis in Ukraine might choke supplies. Investors were worried that a rise in oil prices would further widen India’s fiscal deficit, at a time it is going to polls.

Brent crude rose 2.2 per cent to $111.41 a barrel, its highest since December 31, while gold prices rose about one per cent after Russian President Vladimir Putin declared over the weekend that he had the right to invade Ukraine.

However, losses on Dalal Street were lower than those in other emerging markets, as the Indian currency managed to contain the downsides. A better-than-expected reading for the country’s manufacturing growth in February also helped restrict losses. “A relative resilience in the Indian markets was mainly because of the rupee, which did not weaken much against the dollar,” said Dalton Capital India Managing Director U R Bhat.

The BSE Sensex fell 173.47 points, or 0.82 per cent, from its previous close to end the day at 20,946.65. The NSE Nifty dropped 55.50 points, or 0.88 per cent, to close at 6,221.45.

The rupee closed at 62.04 a dollar, 0.47 per cent lower than its Friday close of 61.75, its highest level since January 21.

Analysts, however, warned that the impact on emerging markets, including India, would be much more if the geopolitical tensions intensify. Global powers have threatened imposing economic sanctions on Russia, the world biggest oil producer.

“If the tension escalates and oil prices spike further, and the dollar firms up significantly, sentiment in India will not remain de-coupled from that in other emerging markets,” said Bhat.

NSE’s Volatility Index — a measure of traders’ perception of near-term market risks — rose 7.8 per cent to 15.28.

Elsewhere in Asia, Japan’s Nikkei 225 fell 1.3 per cent, while Hong Kong’s Hang Seng declined 1.5 per cent and South Korea’s Kospi by 0.8 per cent. China’s Shanghai Composite, on the other hand, bucked the trend by gaining 0.9 per cent, despite official data showing the country’s manufacturing activity slowed to an eight-month low in February.

Gold prices rose on worse-than-expected Chinese manufacturing data and uncertainty over the rift between Russia and western nations. After surpassing the psychological barrier of $1,350 an oz, gold fell marginally to trade at $1,346 in early afternoon trade, up $16 an oz. Silver followed suit.

Naveen Mathur, associate director at Angel Broking, said: “After weak Chinese and US data, some safe-haven buying in bullion has emerged.”

Leading base metals, including copper and aluminium, fell by $15 a tonne each to trade at $7,015 and $1,840, respectively, amid concerns of falling demand.

“Manufacturing Purchasing Managers Index for China (eight-month low of 48.5 in February, against 49.5 in January) confirmed the speculation that the country’s economy was slowing down. This proved negative for base metals. Economic data from the US was also discouraging. Downside for metals, though, is limited,” said Sugandha Sachdeva, research incharge for metals, energy & currency, Religare Securities Ltd.