MUMBAI: Market mavens cite the ongoing Ukraine war and sanctioning of Russia as factors which could make markets choppier in the days ahead. The immediate impact facing energy-dependent countries such as India is seeing the spike in crude oil to seven-year highs, due to fears of near-term supply constraints arising from the conflict.
While India witnessed Brent rising to a record $148 a barrel on July 11, 2008, the rupee back then traded at around 43 to the dollar against the current rate of 75.3 . That clearly impacts the customer and companies as it stokes inflationary expectations, which could reflect on the stock markets. Brent, which topped $105 a barrel on Feb 24, has since cooled to $97.93 , but uncertainty lies ahead.
“Volatility will be the order of the day,” Nilesh Shah , MD, Kotak Mahindra AMC, told ENS. “It is tough to predict the outcome of war, but our worry is elevated energy prices. Higher energy price widens the CAD, increases Inflation and lowers growth. While we have ability to bear higher oil prices, nevertheless it will impact us adversely and markets will try to adjust the prices to reflect that.” The Nifty plunged 815 points through 16247.95 on February 24, marking Russia’s invasion of Ukraine.
Fear gauge India Vix hit a year high of 33.97 on that day. And though it cooled off to 26.74 a day later, a reading above 20 indicates high uncertainty. “The Ukraine war will have an impact on commodity costs , especially crude, which in turn will affect inflation and margins in the short to medium term,” said independent market analyst Ambareesh Baliga.
“Whenever such sanctions have been imposed in the past, the reversal takes much longer even after the issue is settled. The only silver lining could be the possibility of Rupee trade with Russia. Markets have bounced as sanctions did not include energy and the US/Europe did not get involved militarily. But these levels may not last long and could get sold into due to uncertainties as well as expected liquidity outflows.”
Some market experts don’t expect the sanctions and rising oil to harm EMs like India materially. “Removing some Russian banks from SWIFT is unlikely to materially impair the wealth of assets that the Russian leadership has built up across the world even as that country has managed to strengthen economic ties with China,” said Saurabh Mukherjea, founder and CIO, Marcellus Investment Managers.
“Our economy is recovering well from the pandemic and corporate profitability is improving faster than expected. We have borne higher oil prices in the past and will absorb the present rise.”
Inflationary expectations
While India witnessed Brent rising to a record $148 a barrel on July 11, 2008, the rupee back then traded at around 43 to the dollar against the current rate. It impacts customers & companies.