Benchmark indices which are already down by about 8 per cent from the recent highs could fall by another 5-10 per cent if tensions between Ukraine and Russia escalate further, suggest experts.

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The Nifty50 had a touch-and-go moment with 200-DMA on Tuesday. The technical bounce back is unlikely to sustain as there is plenty of resistance at higher levels, caution experts if things escalate further and crude oil continues to boil.

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Western nations on Tuesday punished Russia with new sanctions for ordering troops into separatist regions of eastern Ukraine and threatened to go further if Moscow launched an all-out invasion of its neighbour, said a Reuters report.

U.S. sanctions are being applied to VEB bank and Russia's military bank, Promsvyazbank, which does defence deals, the report added.

History suggests that equity markets globally tend to overreact to geopolitical events. For example, after the Iraqi invasion of Kuwait, the global markets fell but later regained its level within the next six months.

“If we proxy tensions by looking at Ukrainian EMBI spreads or gold then clearly tensions remain high. In this situation, we think that the key transmission mechanism is not via economic contagion or financial contagion but via commodities,” Motilal Oswal, MD & CEO, Motilal Oswal Financial Services, said.

“We believe central banks would not change the policy unless the rise in commodity prices were to cause a sharp downturn in global growth,” he added.

Motilal Oswal highlights 3 scenarios:

1) Central scenario: Equity market likely to stabalise

No major further escalation: In this scenario, we assume President Putin wins important concessions about Ukraine not joining NATO and over Nordstream. I would expect the oil price to fall modestly and Indian markets finding support at current levels.

2) Risk scenario: Indian market may fall by 5%

Limited incursion (in a similar style to Crimea): We assume in this scenario that there is less disruption to the Russian banking system and trade in oil and gas exports continues. I would not see this leading to meaningful disruption. Indian markets may fall c5% from current levels.

3) Low probability scenario: Full-scale invasion: Indian market could fall by 10%

There is little apparent public support for a full-scale invasion among Russians, it would make little strategic sense, and full-scale sanctions risk significant damage for the Russian economy.

The subsequent rise in resources prices risks a c10% fall in markets from current levels.

Keep an eye on crude:

The major impact of any escalation of the Russia-Ukraine conflict will be reflected on crude oil prices. Being a net importer of crude oil, India will not just take a hit on import bill but also a rise in inflation which remains to be the biggest threat for central bankers not just for India but across the globe.

"The major impact of the Ukraine crisis in India is the implications of crude at $97. If crude sustains at around these high levels, inflation in India is sure to go up,” Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.

“If inflation rises it would force the RBI to revise its FY 23 inflation target upwards and signal withdrawal from the accommodative monetary stance. This would be negative from the growth and earnings perspective,” he said.

For India, the main effect will be via the indirect impact on global oil prices. Russia accounts for 11 per cent of global crude-oil exports.

“If sanctions take about 60% of this off global markets (with China, Belarus, and a few other customers possibly defying the sanctions), world crude-oil supply would decline by 3mmbd, and the Brent crude price would likely shoot above US$110/bbl,” ICICIdirect said in a report.

“The possible revival of the Iran nuclear deal (JCPOA), now at a crucial stage of negotiations, could restore about half of this supply, adding about 1.5mmbd of production and exports within a few months,” it said.

Even with the possible restoration of Iran as a major crude oil exporter, the brokerage firm sees Brent to still remain above US$100/bbl for much of 2022.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)