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3 factors that caused Indian stocks to resume downtrend

The Sensex and the Nifty started the session deep in the red, falling nearly 2 percent each, as the Russian invasion of Ukraine weighs on global and Indian markets

Mumbai / February 28, 2022 / 12:22 PM IST

The relief rally on seen on Dalal Street on February 25 lasted all but one session, as domestic equities resumed their slide on February 28.

The Sensex and the Nifty started the session deep in the red, with the benchmark indices falling nearly 2 percent, tracking weakness in global markets earlier in the day.

Anand James, the chief strategist at Geojit Financial Services, said the market underestimated the upside potential of the relief rally on February 25.

Catch all the live market updates here.

Let’s take a look at the major factors driving the market on February 28:

1 Ukraine-Russian crisis

The Russian-Ukraine crisis, which was the primary driver of global equities over the past two weeks, remains a worry, especially after the Russian forces invaded  the eastern European country on February 24. Investors are worried about further escalation after Moscow put its nuclear force on special alert in retaliation of the sanctions imposed by several western economies.

Also read: Do not expect Indian markets to fall much from current level: Aberdeen’s Hugh Young

2 SWIFT effect

Much of the relief rally was driven by the fact that the US and the European Union had stopped short of banning Russia from the international financial messaging system SWIFT. For investors, barring Russia from SWIFT could have a catastrophic impact not only on the Russian economy but those linked to it.

With a call for action growing, western economies banned a clutch of Russian banks from the SWIFT system over the weekend. The fear now is that if Russia does not back out of Ukraine, the country’s entire banking system could be cut off.

Click here for live updates on the Russian invasion of Ukraine

3 Stagflationary vibes

Investors have been mulling the second-order impact of the Russian invasion and the sanctions being imposed on Moscow.

One major second-order effect could be a possible stagnation of global economic growth, as geopolitical uncertainty dampens business and consumer sentiment. At the same time, Russia, a major energy producer, being cut off from foreign trade could escalate inflationary pressure.

While indices did start the day lower, they managed to pare losses. AT 11.28 am, the Nifty was down 0.2 percent, or 33 points, at 16,625. The Sensex was at 55,737, down 0.2 percent, or 121 points.

The overall breadth of the market was strong, as advancing stocks outnumbered declining ones on the National Stock Exchange.

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Chiranjivi Chakraborty
first published: Feb 28, 2022 12:00 pm