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Expect more fireworks as Russia and the US refuse to budge over Ukraine; here's a primer for investors on how to play safe

February 26, 2022 / 10:12 AM IST
Servicemen of the Ukrainian National Guard take positions in central Kyiv, Ukraine February 25. (Image: Reuters)

Servicemen of the Ukrainian National Guard take positions in central Kyiv, Ukraine February 25. (Image: Reuters)


Dear Reader,

In the cold world of big money, the consensus, it appears, is that the worst impact of the Russian invasion of Ukraine, without any provocation, is behind us. India’s stock markets gained 2.4 percent on Friday, clawing back a fair share of the 4.7 percent loss they suffered on Thursday. They must have been taking cues from the US market, which rose sharply on Thursday night. However, futures are indicating a slight drop in values on Friday night.

The reports coming in at the time of writing this piece said that Russian forces were on the outskirts of Ukraine’s capital Kyiv. By the time you read this on Saturday, the situation could have changed dramatically, probably for the worse. Our coverage this week has tried to provide an overview of the geopolitical impact of the war and also hand hold investors navigating this turbulent period.

The week started off on a slightly optimistic note, when Joe Biden and Vladimir Putin had agreed to meet in principle but on the condition that Russia would not invade Ukraine. We pointed out in Ukraine and the challenge to US hegemony “Left far behind are the nineties and the noughties, when the world was supposed to be ever more closely integrated economically, under the benign auspices of Pax Americana” and that the “battle for hegemony will ensure that geopolitical risk will remain high for a very long time. All countries and markets must learn to price in this additional risk”.

In our weekly column Eastern Window, we argued that the plan to invade Ukraine was hatched when Putin visited China earlier this month. Even before the invasion, stock markets were headed for a period of uncertainty, argued Mohamed El-Erian in the FT (free to read for Moneycontrol Pro subscribers) due to two liquidity-related structural issues. Also read what advance PMIs for February say about growth, inflation, and the supply crunch.

But the Biden-Putin meeting was never meant to be, as Russia recognised the independence of two separatist regions in eastern Ukraine, escalating the conflict. That set the stage for Russia sending its troops to these two regions and then later mounting a full-fledged assault from land, air and sea on Ukraine. It will be appropriate here to see how the Great Powers spend on their military.

The West responded to Russia’s aggression with economic sanctions, which was entirely expected but they lacked sting. Europe ensured its energy supplies were not affected which meant Russia continues to earn money from its supplies of energy and even agricultural commodities. Russia, it appears, so far has calculated well that Europe’s dependence on it for energy will save it from the worst of sanctions.

We wrote on how Russia is poised to handle sanctions while this FT piece argued that the West must show greater resolve over Russia’s aggression. We looked at the lessons we can learn from how the markets reacted to such situations in the past and how soon stocks bounced back. We also looked at the tell-tale signals investors must monitor to call a market bottom.

On the sectoral impact, we had the following stories:

What’s next in crude course as Ukraine conflict pushes oil price close to $100?

How the Ukraine conflict can choke aluminium supply, worsen global chip shortage

The corporate fallout from Russia’s invasion of Ukraine (republished from the FT)

Finally, the correction may be an opportunity to buy blue chip stocks as the fall in the market has made them look relatively attractive.

Among other investing insights published during the week, we wrote about how Ambuja Cements was a ‘buy or a sell’ after its recent earnings, FMCG company Nestle India’s resilient performance when its peers had fumbled, on railway engineering stocks, Crompton’s Butterfly Gandhimathi buy, a travel stock, a steel company whose performance disappointed, Indraprastha Gas and a peek into durables and another one on AC companies.

The question mark over the LIC IPO has become bigger, with weak market conditions being made worse by the war. We did write on how the proceeds from the LIC IPO can come in handy for government to rein in inflation and also pondered how much LIC can get from its impending stake sale in IDBI Bank.

Talking about IPOs, here’s our take on How startup IPOs stack up against old economy ones and SEBI's proposed IPO valuation norms missing the woods for the trees.

Hindustan Unilever caught our attention this week, and we said investors should watch out for the change that is coming for Hindustan Unilever. We also dwelled on the topic of whether HUL is slowing on breakthrough products.

This week’s update on the Herd Immunity Tracker said fading COVID cases in India are boosting the vaccine export opportunity and we also wrote on why India must achieve full vaccination coverage quickly.

We wrote on the IT sector, saying tech prospects hinge on sustainable growth as base effect wanes, noted the unexciting start for the Thyrocare-PharmEasy combine, how Galaxy Surfactants was navigating the supply-chain turmoil with poise, asked if value innerwear stocks will continue to do well and peeked into the wide gap between Suzlon's performance and investor enthusiasm.

On Cryptos, CBDCs, startups and more:

Algo Rhythm | How to conduct a robust backtest of your trading strategy

Can CBDCs and stablecoins co-exist?

Digital Rupee | Will commercial banks still be needed for credit creation?

Start-up Street | VC action hots up in blockchain gaming

Keep watching as the events unfold and let’s hope peace returns to that part of the world soon.

As for the horror and pointlessness of war, William Tennyson said it like it is in ‘The Charge of the Light Brigade’.

Here’s an extract:

HALF a league, half a league,
Half a league onward,
All in the valley of Death
Rode the six hundred.
'Forward, the Light Brigade!
Charge for the guns!' he said:
Into the valley of Death
Rode the six hundred.
'Forward, the Light Brigade!'
Was there a man dismay'd?
Not tho' the soldier knew
Some one had blunder'd:
Their's not to make reply,
Their's not to reason why,
Their's but to do and die:
Into the valley of Death

Rode the six hundred.

Cheers,

Ravi AnanthanarayananMoneycontrol Pro
Ravi Ananthanarayanan