Russia-Ukraine crisis: Here's what the conflict can mean for equity investors
The ongoing conflict between Russia and Ukraine has been weighing heavy on the global equity market with rising crude oil prices.
- Feb 23, 2022,
- Updated Feb 23, 2022 12:25 PM IST
The ongoing conflict between Russia and Ukraine has been weighing heavy on the global equity market with rising crude oil prices. Following the volatility in other major markets, the benchmark equity index BSE Sensex declined 1.22 per cent, or 713 points to 57,300-mark on a month-to-date basis till February 22. The index was at 58014.17 on January 31, 2022. Likewise, the 50-share Nifty index also lost 1.42 per cent, or 247.65 points, to 17,092.20.
The impact of geopolitical tensions amid tight global supply is visible on the oil prices in the international market. Brent crude climbed 6.17 per cent to $96.84 per barrel on February 22 against $91.21 per barrel on January 31 last month.
According to market watchers, there are expectations that the US and its European allies are likely to announce further sanctions against Russia after President Vladimir Putin formally recognised the two regions in eastern Ukraine. US yesterday had already announced a few sanctions and has said that if Putin goes ahead and invades Ukraine, another fresh set of sanctions can be imposed.
Fear in the market is that sanctions may lead to a global supply crunch as Russia is one of the largest oil exporters in the world. Tight output policies from the OPEC plus members amid recovering demand from the coronavirus pandemic are also reflected in the price.
While sharing his view on the present market conditions, VK Vijayakumar, chief investment strategist, Geojit Financial Services said, "If crude hovers around $97 it will have far-reaching consequences for the Indian economy and consequently for stock markets. RBI's CPI inflation target of 4.5 per cent for FY23 will be difficult, almost impossible, to achieve."
"The MPC will be forced to depart from the accommodative dovish monetary stance that they have been following since the outbreak of the pandemic. Rising interest rates in India in the context of global monetary tightening led by the Fed will be negative for stock markets. But the situation can quickly change if the Ukraine crisis is contained and crude falls. We are in a ferocious bull market. Bull markets have the strength to climb many walls of worries," Vijayakumar added.
Sector-wise, the BSE Realty index cracked 10.45 per cent since January 31. It was followed by the BSE PSU index (down 7 per cent), Oil & Gas (down 6.25 per cent), Capital Goods (down 4.89 per cent) and Power (down 3.25 per cent). On the other hand, the BSE Metal index (up 2.89 per cent) stood lone gainer among the sectoral indices on the exchange.
Narendra Solanki, head-equity research (Fundamental), Anand Rathi Shares & Stock Brokers said, "Short term fund flows are seen heading back to safe heavens due to heightened uncertainty in the near term." Gold prices have gained 4.81 per cent to Rs 50,082 per 10 gram on a month-to-date basis as market participants preferred safe-haven assets in a war situation.
Motilal Oswal, MD and CEO, Motilal Oswal Financial Services explained markets globally tend to overreact to geopolitical events. After the Iraqi invasion of Kuwait, for example, the global markets fell but later regained their 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. We believe central banks would not change the policy unless the rise in commodity prices were to cause a sharp downturn in global growth," Oswal said, adding Indian market may fall 5-10 per cent if tensions escalate.
The ongoing conflict between Russia and Ukraine has been weighing heavy on the global equity market with rising crude oil prices. Following the volatility in other major markets, the benchmark equity index BSE Sensex declined 1.22 per cent, or 713 points to 57,300-mark on a month-to-date basis till February 22. The index was at 58014.17 on January 31, 2022. Likewise, the 50-share Nifty index also lost 1.42 per cent, or 247.65 points, to 17,092.20.
The impact of geopolitical tensions amid tight global supply is visible on the oil prices in the international market. Brent crude climbed 6.17 per cent to $96.84 per barrel on February 22 against $91.21 per barrel on January 31 last month.
According to market watchers, there are expectations that the US and its European allies are likely to announce further sanctions against Russia after President Vladimir Putin formally recognised the two regions in eastern Ukraine. US yesterday had already announced a few sanctions and has said that if Putin goes ahead and invades Ukraine, another fresh set of sanctions can be imposed.
Fear in the market is that sanctions may lead to a global supply crunch as Russia is one of the largest oil exporters in the world. Tight output policies from the OPEC plus members amid recovering demand from the coronavirus pandemic are also reflected in the price.
While sharing his view on the present market conditions, VK Vijayakumar, chief investment strategist, Geojit Financial Services said, "If crude hovers around $97 it will have far-reaching consequences for the Indian economy and consequently for stock markets. RBI's CPI inflation target of 4.5 per cent for FY23 will be difficult, almost impossible, to achieve."
"The MPC will be forced to depart from the accommodative dovish monetary stance that they have been following since the outbreak of the pandemic. Rising interest rates in India in the context of global monetary tightening led by the Fed will be negative for stock markets. But the situation can quickly change if the Ukraine crisis is contained and crude falls. We are in a ferocious bull market. Bull markets have the strength to climb many walls of worries," Vijayakumar added.
Sector-wise, the BSE Realty index cracked 10.45 per cent since January 31. It was followed by the BSE PSU index (down 7 per cent), Oil & Gas (down 6.25 per cent), Capital Goods (down 4.89 per cent) and Power (down 3.25 per cent). On the other hand, the BSE Metal index (up 2.89 per cent) stood lone gainer among the sectoral indices on the exchange.
Narendra Solanki, head-equity research (Fundamental), Anand Rathi Shares & Stock Brokers said, "Short term fund flows are seen heading back to safe heavens due to heightened uncertainty in the near term." Gold prices have gained 4.81 per cent to Rs 50,082 per 10 gram on a month-to-date basis as market participants preferred safe-haven assets in a war situation.
Motilal Oswal, MD and CEO, Motilal Oswal Financial Services explained markets globally tend to overreact to geopolitical events. After the Iraqi invasion of Kuwait, for example, the global markets fell but later regained their 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. We believe central banks would not change the policy unless the rise in commodity prices were to cause a sharp downturn in global growth," Oswal said, adding Indian market may fall 5-10 per cent if tensions escalate.