Russia-Ukraine war hits Indian stocks: What should you do now?

Indian equity shares posted deep losses on Thursday, amid a broad-based sell-off after Russia announced a military operation in Ukraine. Sensex fell more than 2,700 points to end the day at 54,529, while the Nifty closed 816 points to close the day at 16,248. This is the 4th worst daily fall witnessed by the markets. All sectoral indices ended in deep red, with pockets such as financial, IT and oil & gas being the biggest drags on headline indices. A look at sectoral indices. 

How have global markets behaved?

• Russian stocks were the worst hit with the ruble sinking to a record low. The dollar-denominated RTS index plunged 50% to a low of 614.19 level for the day. MOEX, another Russian index, wiped off 46% of its value to trade at 1,690.13.
• The MSCI Asia Pacific Index slid as much as 2.8% to the lowest level since November 2020 after the Russian incursion. Benchmarks in Australia, Hong Kong, Singapore also fell up to 3% each. 
• The S&P 500 entered deeper into a correction on Wednesday as it fell 1.8% to 4,225.5. The index is now nearly 12% down from its Jan. 3 record high. 

Impact of Russia-Ukraine war on India 

Higher crude oil prices: Brent crude oil prices surpassed $100 per barrel on Thursday, the first time since 2014. India is the net importer of crude oil. As per recent data, India imports 86% of its annual oil requirement. Hence,  higher oil prices will have a negative influence on inflation and the country’s current account deficit (CAD). This may force the central bank RBI to relook at inflation targets, and adopt a tighter monetary policy going forward.  

Rupee depreciation: The higher inflation and higher crude oil prices will also put pressure on the Indian currency. In case the US Fed increases the interest rates the rate differential between the US and India is expected to narrow. This can lead to capital outflows from India, leading to further depreciation. The rupee weakened as much as 1% to 75.325 against the dollar, versus Wednesday's close of 74.555. At least for the next couple of days, all depends on the evolving geopolitical situation, with all other economic factors taking a backseat. 

Impact on commodities: Russia is a commodities major, and Ukraine too is a major producer of wheat. Prices of these commodities have risen as traders remained concerned about the possibility of disruption to shipments. Former RBI Governor noted  that grain prices could also go up. Russia is the world's top wheat exporter, while Ukraine is the fourth largest exporter of wheat. The two nations account for nearly a quarter of total global exports of wheat. However, the impact on India is not expected to be very high, as India does not import wheat. 

Future outlook on stock market

• According to estimates by Motilal Oswal, the markets are likely to fall further before we see a recovery. In cas we have a Crimea type incursio and not a full-fledged war up to 5% from the current levels.
• In case of a full-fledged war, then we are likely to see a 10% downside. “So India as a buy story is a given but the market has overreacted to the geopolitical tensions,” Manish Sonthalia of Motilal Oswal AMC said.  

Also read:  Russia Ukraine conflict keeps stock markets on edge: All you need to know

What should you do now

• The markets are expected to remain volatile in the near future. It would be a good idea to build a war chest so that you can re-enter at better levels. 
• As discussed above, such situations of geopolitics, wars and invasions have mostly had a fairly short term impact on the stock markets. Hence, investors should avoid panic selling when faced with volatility.
•  Invest in equities in a staggered manner. 
• Keep your SIP’s running. Stick to large caps and index stocks that are best suited to navigate the ongoing volatility
• Cut your losses where stocks have fallen far more than the industry average by a big margin. The probability of these stocks recovering anytime soon is low.
• Evaluate if there is merit in averaging some of the stocks in your portfolio by buying some more. Some good quality stocks have also taken a hit in this meltdown, and it may be a good idea to buy on dips.