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MUMBAI : Indian stocks surged more than 3% on Tuesday, clocking their sharpest gain in a year, while oil prices slumped as investors breathed a sigh of relief after Russia said it is pulling back troops from the Ukrainian border.

The sharp reversal came after Monday’s stocks crash, the worst single-day decline in 10 months. Benchmark indices National Stock Exchange’s Nifty and BSE’s Sensex gained 3.03% and 3.08%, respectively, on Tuesday.

Roller-coaster ride
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Roller-coaster ride

The threat of a Russian invasion of Ukraine had further clouded an already grim market outlook due to accelerating inflation and potential interest rate hikes by the central banks of advanced economies, including the US Federal Reserve.

Investors feared the Russian invasion would invite retaliation by the North Atlantic military alliance, driving up oil, natural gas, and wheat prices.

Oil dropped from its highest since 2014 on easing geopolitical tensions. Brent crude prices fell 2.25% to $95.47 a barrel.

“Reduction in tensions on the Russia Ukraine front has led to buying interest/short covering in the markets," said Deepak Jasani, head of retail research at HDFC Securities Ltd.

Realty, consumer durables, capital goods, banks, auto, telecom and information technology shares led the gains on Tuesday.

Asian markets were mixed. While the Jakarta Composite and Shanghai Composite indices gained, Hong Kong’s Hang Seng and Japan’s Nikkei indices ended the day in the red.

Even as the easing of tensions in Europe came as a respite, volatility cannot be ruled out, experts said.

“Markets have been witnessing a roller-coaster ride, and we expect the same to continue in the near future. In the absence of any major domestic event, updates related to Russia-Ukraine tensions and their impact on global markets will be on the radar," said Ajit Mishra, vice-president of research at Religare Broking Ltd.

Impending rate hikes by the US Fed are expected to keep the markets nervous in the coming weeks. In fact, BofA Securities slashed its December Nifty target to 17,000 from 19,000.

“Our US economists now expect a fast Fed hiking cycle, with 175bps and 100bps hike in CY22 and CY23, respectively," said analysts at BofA Securities in a 14 February report.

Fed and RBI hiking cycles since 1994 suggest market valuations could contract, they added. One basis point is one-hundredth of a percentage point.

Retail inflation is also worrying investors.

“India’s CPI (consumer price index) inflation for January rose to 6.01%, breaching RBI’s tolerance level due to high food inflation and low base effect. This will be a point of concern for the domestic market in the near term," said Vinod Nair, head of research at Geojit Financial Services.

LKP Securities’ head of research S. Ranganathan said that several concerns are still weighing on investors’ minds.

Foreign institutional investors continue to be sellers of Indian equities, having sold 10,836.34 crore worth of shares so far in February and 46,811.37 crore since the start of the year. FIIs have been net sellers of Indian shares for five straight months now.

The Indian rupee strengthened against the dollar, rising 0.26% to 75.34.

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