As Russia Prepares To Invade Ukraine, What Is In Store For Indian Market, Rupee & Gold?
It is pretty grim situation in Ukraine as of now; Russian military has given Ukrainian forces a deadline of 5PM local time (8PM IST) to either surrender or face an all-out assault. US president Barrack Obama has warned Russia that this military action can prove to be costly for them and they have already withdrawn their participation from the G8 meetings and Russia can be very soon ousted from this exclusive group.
Canada, UK and France have already pledged their support to Ukraine, and the world is waiting with baited breath about the possible outcome of this military tension.
World War I and World War II, both had started on some similar lines…
Considering the implications of this possible war, how will Indian market respond? What will be the fate of Gold, Oil and Indian Rupee, the three most important commodities which can shake up the whole economical structure of any country?
Russian assets have been worst affected as of now; their stock market fell 11% yesterday and their currency Rouble hit a record low against dollar on Monday. Indian stock market has been unaffected as of now with a marginal fall of 0.8% yesterday. However, rupee has slipped 62 levels against dollar since the outbreak of tensions between Russia and Ukraine.
Nischal Maheshwari from EVP Research says, “As far as the development in Ukraine is concerned there is one big thing which can influence India and that is oil imports; and this will start creating problem for the currency also. Oil has already started going up. That is what’s going to actually create a bigger problem for us. It creates current account deficit, rupee depreciation, among other things,”.
Experts say that as Ukrainian crisis goes into deeper trouble, the demand of gold and oil will increase, which will lead to increase in prices for both of these commodities. In the shorter run, it may prove good for Indian tradesmen and stock broker, but in the longer run, it may prove to be a major hurdle in our economic development, especially with elections around the corner.
Tobias M Levkovich from Citigroup says that the possibility of war can somewhat reduce the euphoric market sentiments but would not be that disruptive. According to him, there won’t be any major depreciation in prices of stocks in short term.
Rupee has already slipped against dollar as the value of American currency is going up on increasing demand. Russia has already told that they are not selling any foreign currency as of now; only buying. American has an important role in containing Russia within its limit, and in case a full blown war breaks out, dollar will certainly go up. RBI will try tom contain the sliding value of rupee, but overall, it is a bad signal for the economy.
Oil & Gold:
As we have seen during Gulf War, any conflict in and around Oil producing countries tend to pressurize the market, as the demand increases because production falls. Russia supplies 30% of Europe’s gas, and half of this supply passes through Ukraine.
The current conflict has shot gas prices in New York to about 2.8% last week. And as dollar is now increasing, we will have to spend more money to buy Gold which will further weaken the currency. The short term burst of Gold and Oil prices will soon lead to widespread increase of price of all commodities.
Just for information, Gold is now trading at 4-month high.
Though Ukraine is not a major market for Indians and Indian commodities, its strategic location and role in oil products can lead to global slowdown, which will definitely lead to slower economical development of Indian markets. It is in best interests of everyone that the current conflict doesn’t escalate, and Russia doesn’t attack Ukraine.
In case you are interested to know more about this current crisis, you are encouraged to read this excellent observation by a Reddit user as to why Russia is invading a poor country, what are their plans. Another post which details why Putin is wrong in provocating Ukraine can provide you further insights.
What is your take in this present military crisis between Russia and Ukraine? Do share your insights and views by commenting right here!