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Market Crash Explained: Russia-Ukraine War, US Fed Meet, State Polls Make a Dent

As global markets took a beating, Sensex fell 900 points, while Nifty plunged to 16,850 on 25 January.

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Market Crash Explained: Russia-Ukraine War, US Fed Meet, State Polls Make a Dent
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As global markets took a beating, Sensex fell 900 points, while Nifty plunged to 16,850, on the morning of Tuesday, 25 January.

While the 30-scrip sensitive index had opened at 57,158.63, it traded at 57,318.28 points at 9:45 am. It had previously closed at 57,491.51. Meanwhile, Nifty had stood at 17,133.35 points at 9:45 am, after opening at 17,001.55.

India's equity benchmarks tumbled the most in nine months on Monday, while the benchmarks have been witnessing a decline for five consecutive sessions, making it the longest losing streak in more than 10 months.

Why are the markets down? Here's what we know.


The Impending US Fed Meet

A two-day meeting of the Federal Open Market Committee (FOMC) is expected to conclude on Wednesday with an announcement. The FOMC is the branch of the Federal Reserve System (FRS) that determines the direction of monetary policy specifically by directing open market operations (OMOs).

Bloomberg Quint has reported that the panellists are expected to signal that rates will be hiked in March, for the first time since the beginning of COVID-19, and the balance sheet will see a shrinkage soon after.

The primary mechanism for balance-sheet reduction is curbing reinvestment of cash from existing holdings of treasuries as they mature.

That uncertainty over the results of the upcoming meeting has left market players unsure of what to expect. The Wall Street is seeing its worst week since the advent of the pandemic.


Russia-Ukraine-NATO War May Be on the Cards

The North Atlantic Treaty Organization (NATO) has warned Russia that it is ready for war and has urged its geopolitical rival to reconsider its hostile foreign policy towards Ukraine. However, Russia's troops continue to flank the Ukrainian border amid escalating tensions, suggesting that a war may be imminent.

Europe relies on Russia for around 35 percent of its natural gas, mostly coming through pipelines which cross Belarus and Poland to Germany, Nord Stream 1 transporting directly to Germany, and others coming through Ukraine.

"Dealers are worried about the prospect of a war in eastern Europe, as the human and economic cost would be huge. Some central European economies, like Germany, are heavily dependent on energy from Russia, and should a war break out, it’s a possibility those energy supply lines would be cut, which would cripple economic output in the EU," Market Analyst at Equiti Capital David Madden told news agency Reuters.

Moreover, Russia and Ukraine are major exporters which ship grain from ports in the Black Sea. Disruptions in these channels due to military action or sanctions will lead to a rise in food inflation.

The expectation of war has led to the tech-heavy Nasdaq stock exchange to drop by more than than 10 percent from its previous high, as per the BBC, while the S&P 500 is suffering a similar contraction.


Other Factors Affecting Markets in India: What Experts Say

Market trends in India are influenced by a number of additional prevailing factors such as the forthcoming Union budget, the Assembly elections in five states, and the monetary policy review by the Reserve Bank of India in the first week of February.

"All the gains of January have now been wiped out, with Nifty down 2.7 per cent from 1 January 2022. Global cues and the upcoming Union budget would be the key factors driving the market direction in the near term. On the political front, developments in the upcoming assembly polls which will be held between February 10 to March 7 in five states would also be closely monitored."
Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services, as quoted by IANS

Market experts fear that the Union budget will be a populist one, with the central government playing to the wants of citizens of the five poll-bound states.


Further, Q3 corporate results announced by major market players such as Asian Paints and CEAT have fallen short of expectations, as per LiveMint.

"Sell off in global markets, weak Q3 results and pre-budget nervousness triggered heavy sell-off in the domestic bourses as risk sentiment took a blow ahead of the FOMC meeting starting tomorrow. Investors are keenly awaiting the result of the two-day Fed meeting where the US Central Bank is expected to provide more guidance on its rate hike plans," Head of Research at Geojit Financial Services Vinod Nair was quoted as saying by news agency PTI.

(With inputs from Reuters, BBC, Bloomberg Quint.)

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Topics:  Sensex   Nifty   Indian Stock Market 

Edited By :Tejas Harad
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