The crisis between Russia and Ukraine and its impact on Stock Market- 3% downfall

The Crisis between Russia and Ukraine and the fall in Stock Market:

Background

Domestic stock markets have been affected by over 3 percent since the crisis between Russia and Ukraine has escalated. The oil prices have touched $100 a barrel as the Indian stock market has seen a free fall for more than seven straight sessions. The same in this case could be traced to Ukraine’s invasion by Russia. The BSE Sensex has dropped over 2,000 points as the Indian stock market is trying to keep up and a massive sell-off is also seen at the moment.

The Sensex dropped to Rs 55,225.26. NSE Nifty was also down at the same time to 601 points with the price of it being Rs 16,462.30. The major Sensex stocks include ICICI Bank, Tata Steel, TCS, HDFC, etc. Were all seen to be trading in a red blood bath.

But, with the fall of the stock market gold acted as a haven for people as it rose to new levels. This can directly be related to the tussle going on between Russia and Ukraine and their consequent sanctions. Because of this, the commodity prices have been fueled up and this has been increasing the fear of monetary tightening.

The President of Russia- Vladimir Putin has authorized a military operation which means that it could start a war in Europe over the demands that have been put up by Russia to end NATO’S expansion in the east. After the military action was ordered by Russia over Ukraine, there was a major fall in the market.

The Internet has been disrupted in Ukraine, roads have been blocked and air spaces have also been closed down which has added to the possibility for cyber attacks against the critical infrastructure providers which are outside the country. 

Impact on the Indian Market

The Sensex faced a loss of 1,800 points. Apart from this the sectoral indices as well as the telecom, IT, metal, and auto stocks are also in the red with a loss of approx 4%. The RIL has faced a stoop loss of 3.5%, Tata Motors of 6%, TCS and HDFC Bank of 2.86% and 2.85% respectively. The concerns caused because of the crisis between Russia and Ukraine have pushed the stock markets into a more correction mode and the small-cap indexes are also facing a loss of 4.27%.

Investors have been worried over the prolonged crisis between Russia and Ukraine and what impact it will have on the Indian tech market. Not only in India, but because of this crisis the stock market of Australia, Japan, Hong Kong as well as South Korea were also down by 3 percent. The market participants are on an edge at the moment because of the boiling geopolitical pot. 

Pathway for investors

If the investors have a long-term investment plan then they should stay invested even if all the stocks are red at the moment and the mutual fund investors should also plan out their SIP without them breaking their investment plans. This big correction, however, allows the investors to invest in good stocks and research before investing.

Before taking up any big commitments of selling their stocks or retaining them further the investors should wait and see how the situation of Russia and Ukraine unfolds itself. At this time in midst of a crisis between Russia and Ukraine the investors should buy stocks only that have good earning visibility or are valued fairly. 

Risks Ahead

If the crisis is elongated and the situation is worsen further then the market is also likely to take a further beating since the price of oil is expected to remain at an elevated level since the beginning of the crisis. The Federal Reserve of the US is expected to meet soon and take a precise decision on the increasing interest rates and the tightened liquidity.

The inflation rate at the moment in India is above 6% of the RBI’s upper band and the increasing rate of crude oil will have a very devastating effect on the Indian economy. The stock market has taken a downward direction because of the potential tightening of the policies as well as the ongoing crisis between Russia and Ukraine. The prices of diesel and petrol haven’t been increased by the OMCs since the last November when the government reduced the same to rs 10 and Rs 5 respectively.

But, a rise in these prices is due and the same has been observed by a few analysts. And, because of the potential war situation, the same would force the global central banks which include the RBI as well to look into their policy stance and adjust it according to the ongoing crisis. 

Way Forward

History teaches us that at the end of a crisis like this which has the outlook of turning into a war, the markets tend to revive back from the red. Unless someone trades in intraday and they have to sell their stocks at the moment and for that, this situation is not in their favor. However, for long-term investors, it is not suitable for them to sell their stocks at the moment and to act irrationally out of fear, as there is no good that can come from selling a stock out of fear.

So, if it is not an absolute necessity, the investors should hold onto their stocks and wait for the crisis to cool down and the markets to turn green. It is considered counterproductive to sell the stocks in such panic. The idea of buying stocks in this market is left open for the investors to decide but they should stick to large caps i.e. the high-quality stocks that do not fall with the market and once the situation is in a better condition then the investors could get into the market and buy what they like.

The situation in the eastern parts of Ukraine is at a lot of risks and it can turn into a major crisis between Russia and Ukraine at any given moment. The security interest of all the parties should be taken into consideration. However, an increase in the prices of crude oil and the prospect of a recession in Europe if a war takes place and stricter sanctions by Russia don’t go hand in hand with the Indian economy, India is a huge importer of crude oil. But, India at present has much more protection against any volatility in its balance of payments than it has ever had in the past.