Russia Ukraine crisis: Impact on Indian Equity Market and the Indian Economy

Russia Ukraine crisis: Impact on Indian Equity Market and the Indian Economy. As the Russia Ukraine crisis deepens we saw nervousness and panic across Indian and global financial markets today. A severe sell off was seen across global and Indian financial markets today. The Indian Equity market saw deep cuts today ( 7th March 2022).

Commodities are soaring across the globe causing inflation to rise at a fast pace. There are fears of a ban on Russian crude oil and Gas by US and allies.

1] Crude oil continues to boil. Brent at a 14 year high, had touched 130 dollars a barrel today . Brent Crude hit an intraday high of 139 dollars a barrel at around 9.30 am.
2] Gasoline, heating oil prices at 14 year highs.
3] Coal prices at an all time high of 430 $ a ton
4] Aluminium trading at life time highs
5] Copper trading at life time highs
6] Nickel trading at 14 year highs – Nickel up 21% on MCX today intraday

7] Zinc trading at 15 year highs
8] Palm oil trading at life time highs
9] Wheat trading at life time highs
10] Coffee trading at 11 years highs
11] Gold trading at 18 months high
12] Shipping prices hit record highs
14] Rupee hits all time lows of 77.02 against the US dollar intraday today.

Russia Ukraine crisis: Impact on Indian Equity Market and the Indian Economy

Commodities soaring across the globe causing inflation to rise at a fast pace across the globe. Inflation is a concern globally and in India.
Margins of Companies which use crude oil and crude derivatives as raw material will get affected. To name a few sectors which will get affected negatively by crude oil prices flaring are Paints, Cement, FMCG (due to freight and packing cost), Airlines.
Due to metal prices flaring companies which use aluminium, nickel, copper, zinc, nickel, palladium as raw material and buy their raw material from the market their margins will get affected.
Companies which manufacture metals will benefit as their profit margins will increase due to rising commodity prices due to supply disruptions caused by the Russia Ukraine crisis.

Agri commodity prices soaring. This will hit margins of companies which use wheat, rice, corn, palm oil as raw material. Consumer stocks will get affected.
Auto industry facing semiconductor chip shortages and supply chain disruptions. Auto industry was already with supply chain disruptions for the last 2 years. Globally there seems to be Semiconductor chip shortages and supply chain disruptions.
There is a surely a risk to earnings of Indian Companies due to rising commodity prices and rising inflation.

We are already seeing prices of stocks in the Indian Equity market getting corrected for companies which are affected by commodity prices rising.
The Indian consumer will get affected by the rising crude oil prices, rising gas prices. The petrol, diesel and gas will get costlier as prices will rise. Rising agri commodity prices of wheat, corn, rice, palm oil will also affect the Indian consumer. The bread, biscuits, Atta, wheat, rice, corn, edible oil will get costlier for the consumer.

Rupee hits an all time low of 77.02 today and currently trades at 76.95. Rupee has depreciated by 77 paise against the US dollar today. Reserve Bank of India (RBI) may have intervened in the currency market in the morning by selling dollars to support the depreciating Rupee. Rupee has depreciated more than 3.5 % in 2022 till date.

Flaring crude oil prices will inflate our import bill. India imports more than 80% of its crude oil requirement. Rising crude oil prices and a depreciating rupee is a double whammy. Crude becomes even costlier for us because of the Rupee depreciation.

Rising import bill will widen our fiscal deficit and will also widen the Current Account deficit (CAD). CAD was already at 3.4% of GDP in the Q3 even before the war. CAD expected to be above 3.5% of GDP for Q4 of FY 2022.

Due to inflation rising there are fears of a slowdown in the Indian economy. FII’s are selling heavily in the Indian Equity market. Their returns are getting affected negatively by the depreciating rupee. There are supply disruptions across the globe. Indian companies facing the heat of supply chain disruptions.

Nifty 50 Index opened with deep cuts today, 7th March 2022. Nifty made a low of 15741.55 and recovered a bit during the day. Nifty was down nearly 500 points in the morning. Nifty trades at 15825 as of now.
Bank Nifty made a low of 32631.55 and recovered a bit during the day. Bank nifty was down 1770 points in the morning. Bank nifty trades at 32700 as of now. We have seen deep cuts in the Indian Equity market today. Selling was seen across stocks and across sectors today.

There is a lot of uncertainty on how long the Russia – Ukraine war will go on and how high crude oil prices will go due to the global geopolitical tensions. If crude oil prices remain at elevated levels for long then there is a serious problem of inflation, current account deficit rising. There is a risk of ban on Russian Crude oil and Gas by the United States ( US ) and allies. If that happens crude oil prices will further flare higher and prices of commodities will further soar higher. This will lead to serious inflationary pressures on the Global and Indian Economy.
The Indian Equity market is expected to remain volatile due to the rising concerns over Russia- Ukraine war. Deep corrections in the Indian Equity market give an opportunity to invest for the Long term.

We had cautioned everybody a month back on the downside risks to the Indian Equity market in our blog post Downside Risks to Indian Equity Market in 2022. To Read go to https://marketsandfinanceacademy.com/russia-ukraine-crisis-impact-on-indian-equity-market-and-the-indian-economy/