Ukraine-Russia worries to keep markets volatile

Indian markets continued to witness elevated volatility as uncertainty continued around the Ukraine-Russia scenario. Both Nifty/Sensex ended the week with losses of 98/320 points (-0.6 per cent each) to close at 17,276/57,833. Broader markets however continued to face sharp selloff with Nifty Midcap 100/Smallcap 100 down -2.7 per cent/-3.4 per cent respectively.

Since the start of CY22, Nifty Midcap 100/Smallcap 100 have fallen by 5.0 per cent and 8.5 per cent respectively against 0.4 per cent fall in Nifty50. Except for IT and Energy which ended flat, all the other sectors ended in red. PSU Banks and Metals fell sharply by 4-5 per cent Pharma, Private Banks, Realty, and Media were down more than 2-3 per cent.

India VIX has again spiked to 22 levels from around 18 odd levels last week, suggesting a roller coaster ride in the market. FIIs continue to be sellers, and sold equities to the tune of Rs 9,700 crore during the week (till Thursday), while DIIs bought equities to the tune of Rs 8,700 crore.

Also Read: Moscow, Kyiv call for talks amid intense shellfire

Global markets too remained on edge after a flare-up in geo-political tensions between Russia and Ukraine. However, the US secretary has accepted the invitation to meet Russia’s foreign minister next week for a resolution. On the positive side, the Fed minutes indicated that while the central bank intends to shortly begin raising interest rates, its decisions would be data-dependent. Domestic markets too kept dancing to the tunes of global news flows from Ukraine. After the initial fall, markets witnessed a sharp pullback mid-week as media reported de-escalation of tensions between Russia and Ukraine.

However, the market turned volatile once again after a warning from NATO saying that Russia is continuing military build-up around Ukraine. On the other hand, India’s WPI inflation rose from 2.51 per cent in Jan’21 to 2.96 per cent in Jan’22, while IIP slumped to a 10-month low of 0.4 per cent in December 2021. This further led to negative sentiments.

Equity markets have seen a rise in volatility in the last couple of days due to varying news flows coming in from the Ukraine border. Nifty has been trading in a broader range of 16,800-17,400 and needs a decisive breakout on either side for clear direction.

Volatility is expected to remain high next week as well, given the crucial meeting between US and Russia. Inflationary concern, continuous FIIs selling and monthly FNO expiry could add to the volatility next week.

(The writer is Head-Retail Research at MOFSL)

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