Markets tank as Russia attacks Ukraine; Sensex, Nifty plunge over 4.7%

Russia mounts biggest assault on a European state since WWII

The Indian markets on Thursday posted their biggest fall in nearly two years after Russian President Vladimir Putin launched a military invasion of Ukraine, triggering a flight to safety among investors. The escalation of the conflict in Ukraine sent shockwaves across the global financial markets with Brent crude oil prices soaring past $105 per barrel and gold prices hitting a 17-month high.

Anticipations of severe US sanctions on Russia stoked fears of disruption in global supply chains and increase in already high inflation. The spike in oil, coupled with the drop in the rupee, many feared, would prompt the Reserve Bank of India (RBI) to raise interest rates.

Experts also expressed concern that India’s macroeconomic situation could worsen if oil prices remained elevated. Global Brent crude oil prices are already up 35 per cent this year. The Sensex fell 2,702 points, or 4.7 per cent, to end the session at 54,530.

The Nifty tumbled 815 points, or 4.8 per cent, to close at 16,248. The fall, the biggest since May 4, 2020, wiped out over Rs 13 trillion in market capitalisation.

Western nations dubbed Russia’s action as full-scale invasion and the beginning of the largest conflict in Europe since the Second World War. Russia’s equity benchmark index dropped close to 50 per cent before recouping some losses.

The US and its allies quickly condemned Russia’s incursions and promised to impose severe sanctions. US President Joe Biden said the world would hold Russia responsible for the death and destruction in Ukraine. And the US and its allies will respond decisively.

“They (Indian government) haven’t hiked oil prices for a while. Once the elections are over, they will have to mark the prices to the market. Crude oil is our largest import and will affect our current account deficit, which will put pressure on the rupee,” said Jyotivardhan Japipuria, founder, Valentis Advisors.

The US 10-year treasury yield softened as investors rotated from equities to safe-haven assets. Analysts said the developments could complicate post-pandemic economic recovery.

“What will happen in many Western countries is that the cost of heating and food is going to rise. You won’t have disposable income like the way you had before. The oil price hike is going to be inflationary. It will hurt our deficit. It is going to have an impact on other spending. Just when you were expecting to come out of Covid, we now have something outside our control. It’s going to keep investors away,” said Andrew Holland, chief executive officer, Avendus Capital Alternate Strategies.

The Russia-Ukraine war has added to the market woes. Already, investors were grappling with the prospects of a tighter monetary regime. The US Federal Reserve is expected to embark upon a series of rate hikes, starting next month, to fight inflation, which reached its highest levels in decades in some major economies.

“Governments and central banks will have to do a tough balancing act in terms of facilitating growth and containing inflation,” said Jaipuria.

The Sensex and the Nifty resembled a sea of red, with all their constituents declining. Index heavyweight Reliance Industries fell 5 per cent. The market breadth was weak, with 14 stocks declining on the BSE for every one advancing. All the sectoral indices fell on the BSE. Realty stocks fell the most, with the sectoral gauge falling 7.3 per cent.