The ceasefire talks between Russia and Ukraine rallied Sensex and Nifty by 1.28% and 1%.
The Indian stock market had extended gains for the third consecutive session as geopolitical uncertainties plague the near-term outlook for equities.
Furthermore, a decline in crude oil prices is a welcomed relief, and Indian markets gained support from profits in Asian indices.
Additionally, Jakarta Composite, Shanghai Composite, Taiwan, and Hang Seng closed with profits of 0.59%-1.96%.
How will geopolitical uncertainties plague the outlook on equities?
Head of research at Geojit Financial Services Vinod Nair said, “high volatility prevailed in the global market, but peace talks between Russia and Ukraine gave hopes of a de-escalation of the war, helping the domestic market trade with confidence.”
He further said that easing crude and commodity prices supported the market.
However, recovery aids positive global development, including lowering crude oil prices.
The recovery is amid ongoing peace talks brokered by Turkey aiming to end the war.
Nevertheless, chief investment strategist at Geojit Financial Services, V.K. Vijayakumar, says these are still early days.
Additionally, various experts say that the uncertainties related to the peace talks may keep the volatility steady until the war comes to a complete stop.
The doubt in peace talks led the European markets to trade weakly on Wednesday.
Geopolitical uncertainties and their effect on India
Rising crude prices pose a serious threat to India and likely pressure margins and company earnings.
Furthermore, while crude prices are down from their peak, experts believe the supply-side shortage will keep oil prices at $100.
Additionally, sanctions may not lift even after the war ends, continuing supply-side challenges and rising commodity prices.
HSBC Securities and Capital Markets (India) Pvt. Ltd said in a report presented on March 30; external factors would continue to threaten India’s investment case.
They further added that if crude remains above $100, it will cause a critical macro challenge for India.
Nevertheless, rising US bond yields and the end of easy liquidity negativity are not unknowns as per HSBC.
However, progress in peace may present an upside risk despite geopolitical uncertainties.
Equity fluctuation amid geopolitical uncertainties
On March 16, Brent Crude closed at $101.23 a barrel level.
However, Brent Crude closed at $119.75 on March 25, higher than $112 a barrel on Wednesday.
Vice-president currency and interest rate derivatives at Kotak Securities Ltd Anindya Banerjee said that high crude prices pressure the rupee.
Furthermore, the demand for dollar from oil marketing companies push the pair to 75.91 by the end of trading.
He further expects the rupee to trade between 75.60 and 76.20 on the spot.
Till March 29, foreign portfolio investors remained net sellers by selling equity worth ₹112,469 crores in 2022.
Additionally, domestic investors supported the markets by buying equity worth ₹101,328 crores.
Lastly,
While it seems the geopolitical uncertainties could last for some time, equity rallies show promise. However, given the current global shortage in food and oil supplies, a price hike is likely.
Also Read – Are trade and economic sanctions against Russia risky?