By Yoosef KP & Ruchit Purohit

Equity markets fell for the fifth session on Tuesday as investors remained wary of geopolitical tensions in Eastern Europe. Market experts are of the view that retail investors have now started feeling the pinch after having witnessed an upward rally for two years. Volatility in the market has risen of late and could remain high till the the geopolitical crisis is not resolved. According to Raamdeo Agrawal, chairman of Motilal Oswal Group, “Even if markets fall to 15,000 there is a 20% upside for this year. Current prices can be defended at the index level.”

Foreign portfolio investors continued to take risk off the table, having pulled out close to $12 billion from the domestic equity markets since October 2021. Both the Sensex and Nifty50 have corrected over 7% from their October highs. Reliance Industries along with HDFC twins have contributed 39% to the Nifty’s fall of 1,384.85 points since October 18, 2021. The gauge for bank stocks — Bank Nifty has come off 9.3% from its October peak.

Benchmark indices pared their initial losses to end the session about 1% lower. The Sensex bounced back after plunging as much as 1,288.74 points in intra-day trade to close the session at 57,300.68, down 382.91 points. The broader Nifty50 ended the day at 17,092.20, down 114.45 points. Barring utilities and power, all the sectoral indices compiled by BSE retreated on Tuesday, with realty, metals and telecom losing the most.

Tuesday’s sell-off was triggered after Russian president Vladimir Putin recognised two breakaway regions in eastern Ukraine and acknowledged the independence of Donetsk and Luhansk, which lead to volatility in every risk asset. With investors moving towards the safe haven assets, the rupee and government bonds declined on Tuesday. While the rupee depreciated 36 paise against the greenback, the yield on 10-year benchmark bond rose 6 basis points (bps) to 6.75%.

According to Dhiraj Relli, MD & CEO of HDFC Securities, markets have been correcting globally from middle of January due a confluence of factors including rising inflation, end of QE, rising interest rates, geopolitical conflicts including the latest Russia Ukraine tiff etc. “Indian markets have some additional worries including outcome of state elections and subdued Q3 numbers. We think the markets may not rise meaningfully till the two big events – outcome of state elections on March 10 and US Fed meet outcome on March 16 are out of the way,” said Relli.

Despite heavy selling by FPIs, the Nifty50 has fallen less than 3% between October and now as the selling has been absorbed by strong local buying. Domestic institutional investors have bought shares worth $14.3 billion since October, Bloomberg data showed.  “Continuous FPI selling has dented the sentiments even in the broader markets and volumes have taken a hit,” said Relli.

Market participants observed that overseas investors were re-allocating some of their funds by pulling out from India and investing in other emerging markets.  For instance, Indonesia and Thailand have attracted inflows of $1.4 billion and $2.2 billion, respectively so far in 2020 where India witnessed an out flow of $7 billion.