The Signal : Elementary Reading into The Russia-Ukraine Standoff: An Investor’s Perspective

With the global economy yet nursing its wound and the Indian economy putting up a brave face as it recuperates, the Russia-Ukraine standoff picked a rather inopportune moment to manifest. Read below if you are interested to understand the possible impact on the economy & an actionable for the investors.

Crude prices have breached the $100/bbl mark for the first time in almost eight years. How is India placed?

It is almost imperative that any disruption in the Russian region will be followed by concerns around crude oil prices given its dominant position as a producer and the world’s critical dependency on the same.

Given India’s negligible dependency on Russia for its crude import requirements, India stands pretty insulated against the direct impact of supply-chain disruptions. However, given Russia’s dominance in global crude supply, a suspension in production activities by Russia will impact global prices of crude with an impact also applicable to India. Crude prices have breached the $100/bbl mark for the first time in almost eight years. Versus 2014, when crude prices breached the $100/bbl mark last, India’s current account deficit situation is marginally better with the deficit pegged at 1.3% of GDP in the previous quarter versus 1.6% in the corresponding period of 2014. However, this does not make the CAD any less susceptible to pressure that will be exerted by elevated crude prices. While the impact may not really be comparable to 2014 given a different context, it sure will have an adverse impact on the account from where we stand today. Our forex reserves have improved to almost twice of what we had in 2014 with a relatively higher import bill coverage.

The inflation situation sure is precarious and the crude saga will only add to the pain, but with the government having the ability to moderate impact through reduction in duties, some impact can be absorbed. Indian macro-economic have strengthened significantly over eight years but is not quite immune to steep increases in crude prices.

Possible sectoral impact

Sectors of prominence in India’s bilateral trade with Russia and Ukraine, especially those involved in defence manufacturing, pharmaceuticals, and certain agriculture products will be among the ones in direct line of impact by the crisis.

How does future look like?

If a worsening situation in the Russia-Ukraine crisis rubs U.S. and NATO the wrong way, one could expect a series of economic sanctions which would probably turn out to be mutually detrimental to all parties involved. India’s diplomatic relationships with concerned nations will be put to test which may not exactly result in India coming out politically unscathed. The India chapter will be bookmarked only to be picked eventually by the emotionally pained nation – whichever it turns out to be.

As the geopolitical upheaval paints a risk-off environment, global investors can be expected to dump stocks fast and growth stocks faster while grabbing a bite only of scrips that seem to offer a strong value buying opportunity. Meanwhile, back home, domestic institutions are lapping up value opportunities presented by panic-stricken FIIs. The rate hike cycle in the U.S., global inflation, safe-haven preference and RBIs seemingly stretched accommodative stance can be expected to have a deprecative effect on the INR versus the greenback. While the currency depreciation is superficially in favour of India’s export agenda, it is not quite the form of a blessing.

Investor’s actionable:

Markets, like history, does not repeat itself, but finds a way to repair itself. It is in the process of re-balancing the scales, that the sound and standing investing principles shine.

Remember: Playing with emotions is Paying with emotions.

While you your judgment of the market prices tomorrow holds as much weight as the prediction of a Magic-8 Ball, you can sure take steps to reduce the extent and effect of uncertainty.

Adopt a Buddhist approach to investing when you don’t know so you don’t give in to temptations. To delay Gratification is to fast-track it.

Today, like every other day, we find ourselves not knowing of whats to come tomorrow. It is in these moments; we advocate to stay put and maintain your risk-based asset allocation.

If you harbor insights you wish to share with us, then do write to us. We excitedly await to hear from you.

Happy Weekend!