Investors bailed out of risky assets, sending stocks crashing after Russian President Vladimir Putin’s troops invaded Ukraine. On Thursday, the exodus from stocks wiped out ₹1.3 lakh crore in investor wealth on Indian stock markets. But the bad news for stocks was a boon for safer assets such as gold and government bonds. Crude oil surged past the $100 mark amid expectations of tighter supply.
India’s benchmark indices Sensex and Nifty tumbled, ending 4.72% and 4.78% lower respectively, one of the sharpest daily declines in nearly two years. The declines put the indices in correction territory—defined as a drop of at least 10% from a recent peak. The Sensex hit a record high of 62,245.43 on October 19. A near-6% decline was recorded on 4 May 2020 after the government extended the nationwide lockdown and a flare-up in US-China tensions.
The Russian invasion has triggered the worst security crisis in Europe since World War II. The attack on Ukraine heightens the pressure on the global economy already reeling from Covid and galloping inflation. Investors fear the unfolding crisis will further increase raw material and energy costs. Sanctions against Russia by Western powers are likely to isolate the erstwhile superpower, a major producer of oil and commodities.
Global markets, too, saw deep corrections. Among Asian markets, the Hang Seng, Taiwan, Nikkei, Shanghai Composite, Jakarta Composite ended the day 1.48-3.21% lower. “The world can ill-afford further disruption in trade and commodities when Covid has already weakened sovereign balance sheets,” said Amar Ambani, head of institutional equities, Yes Securities.
Brent crude hit $105 a barrel, a level not seen since August 2014, adding to the worries.
S&P Global Platts Analytics said $100 oil aggravates pain as Asia’s top oil importers are dependent on imports for 70-100% of their needs. “High oil prices will dampen demand and undermine the fragile economic recovery,” said Lim Jit Yang, adviser for oil markets at S&P Global Platts Analytics.
The concerns are likely to remain elevated. “Crude could stay over $100 a barrel in the medium term unless Opec hikes output,” said Hetal Gandhi, director, Crisil Research. Opec members have failed to meet targets over the past three months.
This come even as India’s recovery remains fragile. “High oil prices could delay cool-off in inflation, which was expected to go moderate by mid-2022,” said Naveen Kulkarni, chief investment officer, Axis Securities.