Whether you call it an emendation or a traumatic event, Russia’s aversion towards Ukraine has unnerved the already unstable stock market.
The looming threat of an ignored predicament is now a reality.
Over the years, mankind has witnessed worse outcomes of a global economic collapse with the surge of commodity prices, triggering inflation.
Since the outset of the year, the stock market has been in free fall. The market’s woes are now being intensified by Russia’s escalating disputes with Ukraine. Lately, the international stock market has observed bloodbaths subsequent to the emergence of geopolitical conflicts and war-like-scenario between the two nations. The Ukrainian economy and Russian currency has been severely impacted due to the inflictions.
| > The Euro dipped below $1.10 for the first time since March 2020, after losing almost 3% against the Dollar. > Raw material prices from wheat to metals have surged to multi-year highs, due to the disruption of air and sea shipments of goods traded by Russia. > Brent crude prices escalated by another 21%, slamming at their highest level since 2013. > Prices of aluminium and nickel are at decadal highs. In addition, gold prices have also hit a 13-month record. |
In consequence, the frontline Indian stock-market indexes also agonised. Off late, both the SENSEX and the NIFTY have plummeted by 1%, putting the stock market in the red. The intensifying Ukraine crisis pushed oil prices and fuelled inflation fears. Both indexes were on track to lose for the fourth week in a row.
However, how exactly is India’s stock market being affected by a clash between two warring countries? Is the effect deep-rooted or interim?
Why Does Global Market Suffer due to Geopolitical Tensions?
Scattered in seven sub-continents, the world is a global community.
Large-scale geopolitical tensions in strategic locations could disrupt supply systems and cross-border trade, causing anticipatory hoarding and upsurge in commodities prices. This may have an impact on inflation rates and might result in influencing national currency rates. Furthermore, the occurrence of such disputes can affect the global investors’ risk tolerance, leading to asset selling pressure. The international markets are intertwined with their services, commerce and investments. As a result, a major geopolitical event in one region will have a domino effect globally.
Fund flows from developed to emerging markets are disrupted.
Finance, commerce and currency are all influenced by macroeconomic variables around the world. In addition, these factors steer the flow of funds from developed to emerging markets. Geopolitical conflicts can disrupt supply chains, trade channels and the movement of goods.
How Will the Ukraine-Russia War Impact the Indian Market?
Geopolitical crises such as the Ukraine-Russia war come up with interim market reactions as the presiding news flow fabricates market volatility. The ongoing Russia-Ukraine disputes would result in escalated oil prices, compared to the current ones. Inflation was expected to show a decline by the third and fourth quarters of 2022, but high crude oil prices could cause a delay in the forecast. The current macroeconomic events are causing volatility across all major asset classes, specifically stock and debt. Before we can determine a market direction, we must first deal with the volatility, since it is going to stay for a short time.
India’s import bill could skyrocket.
Less than 1% of the total crude oil imported to India comes from Russia. This is due to Indian refineries’ inability to process the heavy crude produced by Russia. Thus, India will indirectly bear the brunt of escalating crude prices and its import bill will soar tremendously, impacting the previously high CPI inflation. Furthermore, these surging prices will lead to increased prices of food and commodities.
Lately, Brent crude price surpassed $104 per barrel in global markets, an all-time high since 2014. If Western countries inflict sanctions on Russia, the prices will rise even more. The crude oil market will be affected on a large scale as Russia falls in the list of top three oil producers, supplying 12 to 13% of global demand.
Stock market in focus
The premium blue-chip NSE NIFTY 50 index showed a downfall of 2.43% at 16,649.30 points, whereas the S&P BSE Sensex went down to 55,800 points or 2.50% on 24th Feb. Both indexes were on track to fall for the seventh session in a row. This is the longest losing run in the Indian Stock Market since March 2020.
Impact on Crude oil and Edible Oil
Globally, Russia is the third-largest crude oil exporter. Crude oil prices rose to $110 a barrel (7 years high) following Russia’s invasion of Ukraine. Paint manufacturers, oil producers, and fertiliser producers will all suffer when prices rise above $100 per barrel. Furthermore, with increasing crude oil costs on an international level, fuel prices will rise. This will aggravate inflation.
Sunflower oil is mostly produced in Ukraine and Russia. India purchased 13.97 lakh tonnes of edible oil from Ukraine and 2.22 lakh tonnes of sunflower oil from Russia from 2020 to 2021. This consumption and supply have been impacted by the current Russia-Ukraine crisis.
What’s Ahead?
If the Ukraine-Russia conflict worsens, the stock market is likely to suffer significant losses, as oil prices are predicted to remain high. Another source of concern is the impact of the escalating price of crude oil on the Indian economy, which is occurring at a time when inflation is near 6%, well above the RBI’s upper range. The NIFTY volatility index has soared to its highest level since June 2020.
India has taken a neutral stance in the Russia-Ukraine conflict and has urged both countries to use prudence. However, it is obvious that this predicament will have a negative influence on India’s economy. This is due to the fact that India has trading ties with both countries. Since the pandemic, the Indian economy is poised to take another hit if the geopolitical scenario worsens. The overall impact will be interim and will dissipate once the geopolitical barriers wind down.
