NEW DELHI: The Russia-Ukraine war continues to weigh on domestic equity markets as they enter into a sideways movement phase. The geopolitical crisis in eastern Europe will have an impact on the energy as well as commodity prices stoking high inflationary sentiments.
Benchmark indices Nifty and Sensex traded within a range last week with both ending the red. The Nifty moved within a narrow range of 17400-17000 levels in the five sessions last week. The Nifty ended the week at 17,153 (falling by 0.4 per cent) while the Sensex ended the week at 57,362 (lower by 0.52 per cent).
Experts say that usually such range-bound moves end in a decisive move either side, but this time the bias is towards a downward move.
Vinod Nair, Head of Research at Geojit Financial Services, says that after the recent 10 per cent rally, the market has turned sideways with a negative bias due to increase in commodity prices, tightening monetary policy and inflationary pressure.
He feels the domestic market is showing strong resilience but to sustain the trend a lot will depend on the outcome of the war and commodity prices.
High global energy prices are already showing its impact in India with oil marketing companies finally beginning to increase fuel prices. Petrol and diesel prices have already been increased five times last week with petrol costing Rs 3.70 more and diesel Rs 3.75.
The LPG, CNG and PNG prices have also been increased. These will show in the March inflation numbers, increasing the chances of the Central Bank shedding its dovish interest rate policy, a scenario the equity markets are not going to like too much.
"The effect of the war on inflation around the globe and the response of the central banks to tackle it may largely influence the direction of the markets over the near to medium term," says Dr Joseph Thomas, Head of Research, Emkay Wealth Management.
Technical analysts see declining strength in a bounce back by the markets. Nagaraj Shetti, technical research analyst, HDFC Securities, says the inability of bulls to continue with sharp follow-through up move post upside breakout of significant 16800-17000 levels could also be another cause of concern as of now.
"The broader uptrend status remains intact as long as Nifty sustains above 16800 levels. A decisive decline below this area is likely to trigger downward correction and a sustainable move above 17450 could open renewed buying interest in the market for next week," he added.