The war between Russia and Ukraine has added a new wrinkle to countries already grappling with rising inflation. Apart from the negative implications for businesses arising from the conflict, economies that are dependent on Russian energy imports will be severely hit.
The longer-term impact on growth will be determined by how the conflict unfolds. The inflationary shock is likely to last longer if war continues for more weeks. Fears of supply shortages are already pushing the prices of several commodities higher.
Raamdeo Agrawal, chairman, Motilal Oswal Financial Services, speaking on strategies to managing portfolios during volatile times, said investors should look at companies’ strengths which would help them evaluate which stocks to pick.
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“A lot depends on the strength of the companies in this situation and how they are going to negotiate this crisis,” he said, adding that manufacturing companies, to a varying extent, are most at risk from the surge in raw material prices. “If overnight prices are shooting up, how will they be passed on to consumers? Services companies like IT, banking, insurance and broking are not impacted,” said Agrawal.
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“Inflationary pressure, which existed even before the war, is further heightened due to the rise in commodity prices. How much demand destruction will happen? What kind of world economy we are going to see after the war is over?” he said.
While the Russia-Ukraine crisis has thrown worries for industries across sectors, Agrawal believes some companies are better-placed than their peers.
“Weaker industries will still become weak and strong companies will become stronger due to this crisis. We have to look at where earnings are going,” he said.
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