A torrid week for investors ended with the Indian equity market recording its longest weekly losing streak in two years as benchmarks Nifty 50 and BSE-Sensex index closed lower for the fourth successive week.
The Nifty 50 and BSE-Sensex closed the week with a more than 2 percent decline while the Nifty Bank index fell more than 6 percent, in line with global peers.
The losses were primarily driven by the escalating crisis in Eastern Europe after Russia’s invasion of Ukrainian territory that has now entered its eighth day. The development sparked risk-off sentiment in equity markets from Tokyo to New York with investors forced to recalibrate their assumptions for global growth.
“Heightened geopolitical risks are unambiguously negative for economic activity. The magnitude of the effects will depend on the length and severity of the crisis,” said global credit rating agency Moody’s Investor Service in a note.
The invasion has sparked one of the biggest rally in global commodity prices in decades, led by crude oil prices that touched a high of nearly $120 per barrel during the week before cooling off slightly to $112.
For the Indian economy, where economic recovery is fragile and uneven, the surge in crude oil prices is a double whammy as it will further fan inflation as well as widen current account deficit due to pricier oil imports.
“Supply constrained oil price rises are bad for India. Indeed, the recent 25% jump in oil prices will expand the current account deficit by 75 bps and inflation by 100 bps on an annualized basis,” said brokerage firm Morgan Stanley India in a note.
Among the actors driving the selling were the usual suspects – foreign portfolio investors (FPIs). They net sold Indian equities worth Rs 19,149 crore during the week till March 3 as global passive funds exited emerging market-focused exchange-traded funds and stocks. That said, hefty buying from domestic institutional investors and retail investors provided some support to stocks.
The battering from the FPI selling was faced by shares of banks, with the Nifty Bank index falling 6 percent for the week and ending as one of the worst sectoral performers on the National Stock Exchange. Foreign investors are usually among the largest shareholders in bank stocks in India.
At the other end of the spectrum, the Nifty Metal index closed nearly 7 percent higher driven by soaring commodity prices. Aluminium prices were quoting at record highs while copper prices were close to multi-year highs.
“Despite the fact that we have seen a more than 10% decline currently, we feel that this is a 'pause' before the rise resumes and not the commencement of a bear market,” said Yesha Shah, Head of Equity Research, Samco Securities. Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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