Russia - Ukraine Crisis ! ! !

(11/03/2022)

Following 15 days has been one of the highly volatile periods after the crash of 2020. The Stocks Markets corrected around the world, there was panic, and also Russia being a major economy it was a direct threat to other developed economies in the world. Each country was affected differently, and the intensity was seen accordingly. Stocks markets are generally considered a leading indicator, to understand what is happening in and around the economy of the country and the world. Similarly, Indian Stockmarket reacted in panic for no good reason. India or any other emerging economy generally follow the global cues, such as the US and Europe. But the trends seen this time were quite divergent from what was happening throughout the years. India reacted quite drastically as you can see on the marked date of 24th Feb, seeing a fall of more than 4%, whereas on the other hand, the same day, US markets closed in green. But the following days, we can see the US being a developed market was more volatile than the Indian market, which is surprising. After the volatile reaction on 24th Feb, India's equity risk premium was steadily decreasing with no big volatile moves. Whereas for the US, the markets were highly volatile due to the uncertainty of the war and also the sanctions which Russia can impose on the US.

I think the following divergence was seen due to multiple reasons between the emerging economies and the developed markets

• First, it was the moral responsibility of European countries and the US to interfere in this matter, as Ukraine was trying to join NATO. Due to this responsibility, imposing sanctions was a must, as they couldn’t interfere with the military yet.

• Second, in the US already the inflation was 30 years high, on top of this, the sanctions do affect the economy.

• Third, the US markets were reacting quite sensitively to the headline news, hence even for the fake news, the markets were shooting half a percent up and down.

• Fourth, in Derivatives Markets, due to such knee-jerk reactions to any headline news, it creates a huge, short covering and long unwinding, which further propels the market in the same direction.

On the other hand, the intraday volatility of Indian Markets was much higher, due to FII selling, Bad Global cues, Sentiment of the market, High crude oil prices, Inflation, and also the Local State Elections whose results were announced yesterday on 10th March. This volatility was mainly seen as Foreign Institutional Investors were heavily selling the Indian Markets, and in the afternoon the Domestic Institutional Investors used to step in and balance the selling figure.