Geopolitical Tensions Create Market Turbulence
There has been no respite for the global equity markets. The ever-uncertain and fluid situation between Russia and Ukraine has kept the global markets on tenterhooks. Towards the beginning of the week, tensions started to escalate with Russia ordering troops to the separatists’ regions and recognising their independence. By Wednesday night, Ukraine let the world know of a full-fledged Russian invasion. All these kept the global equity markets volatile and prevented them from making any meaningful recovery from lower levels. What was important to note about the Indian equities from the global perspective was that unlike the past couple of weeks, they were quite resilient as compared to the global equities.
The Indian headline index NIFTY, Nifty Bank and the broader NIFTY 500 index lost 1.39 per cent, 0.37 per cent, and 1.79 per cent, respectively. On the other hand, the S & P 500 index lost 3.53 per cent, Dow Jones Industrial Index lost 3.44 per cent, and the tech-heavy NASDAQ lost 4.95 per cent over the past five days. On the debt site, the US bonds remained stable; this was reflected in the US 10-year treasury yield remaining stable as well.
However, the risk-aversion and reaction to fluid geopolitical situations remained quite evident and obvious. The equities, defined as a risky asset, took a quite apparent backseat; the even riskier assets like crypto currencies got hit harder. Over the past five days, the two leading crypto currencies, Bitcoin and Ethereum, lost 8.08 per cent and 10.83 per cent, respectively. This was a clear result of the investors turning away from the riskier assets; be it equities, or even riskier assets like these NFTs. To further support this obvious investor behaviour, safer assets like gold spiked.
Even though the Indian markets may have shown resilience against the global equities this time, the fear in the markets was evident. This was reflected in India’s volatility index represented by India VIX. This volatility gauge has spiked; it has gained over 40 per cent through this week. At just over 31, these levels were tested only around June 2020. This takes India VIX at almost a 20-month high. Another crucial thing to watch will be the US Dollar index which has gained a modest 0.41 per cent over the past five days. If this moves past 97, it will attempt yet another multi-month breakout on the charts.
Coming back to Indian equities, they are in for some turbulent time again. With the fresh tensions taking the headline index below the 200-DMA, this level will theoretically pose resistance at the time of a technical pullback as the NIFTY has dragged its resistance lower. The 200-DMA is presently at 16,887 on a closing basis. So, in a way, investors will see the NIFTY forming a lower trading range with 16,300-16,800 levels as a defined zone.
The shorter timeframe charts may be showing some noise, but there isn’t any significant breakdown on the higher timeframe charts. The prudent way to navigate the current markets would be to refrain from shorting the markets aggressively, more so from the current levels, and avoiding excessively leveraged positions as well. Investors must, during such turbulent times try and buy quality stocks which have turned cheaper overnight by making select purchases at lower levels.
