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Why will they panic and if this wasn't a sharingan genjutsu then would they panic?
Yes. The panic is more directed towards the Kamihada, with their body suddenly starting to turn to ash in their eyes, they would initially panic as any person would. I don't think the Sharingan being the one to instill the Genjutsu matters. Yes, making eye contact right before could tip them off, but I believe it's the fact that they don't feel heat on their bodies despite turning to ash that would make them realize that it's a genjutsu, not the fact that it's a Sharingan jutsu.