Moneycontrol Pro Panorama | Growing risks from hot crude oil prices are singeing equities

Dear Reader, The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. The economic costs of the Russia-Ukraine conflict are becoming increasingly apparent. India's benchmark stock market indices slumped on Monday morning, tracking the losses seen in Asian equities. Stocks fell as fighting in Ukraine intensified and Brent crude oil surged to a record $129 a barrel. Crude oil prices soared after the US said it is in discussion with its allies to replace Russian oil in their energy baskets. As we explained earlier, supplies are already tight and there are no readily available reserves to tap into. As buyers rush to secure supplies, they have sent oil prices up to record levels. The Nifty is down 7 percent from February 24 when Russia began the Ukraine invasion. The conflict is extracting a heavy cost from Ukraine and Russia, and even the rest of the world. High crude oil prices can impose an additional cost of $70 billion and shave off 50-100 basis points from India’s economic growth, warns Suvodeep Rakshit, senior economist, Kotak Institutional Equities in this interview. The calculations are based on an average crude oil price of $120 per barrel. And, if that was not enough, read this FT piece (free for Pro subscribers) on why oil prices might still climb higher. High crude oil prices can further stoke inflationary pressures, burden consumers and crimp disposable incomes. Rakshit estimates inflation can increase by around 100-150 basis points. “This is the cost borne by the households, including costs passed on by companies and freight operators,” he adds. 100 basis points equal one percentage point. Worryingly, the conflict and resultant geopolitical tensions are threatening to disrupt the recovery and business normalisation that was becoming visible. A Nomura analysis showed restocking happening from mid-2021, implying easing of supply chain constraints. Those gains seem to be at risk now. “The ongoing Russia-Ukraine conflict could threaten supply chains again. Freight and logistics costs are set to rise,” warns Nomura. The impact will be felt by companies and the economy at large. The chemicals sector and manufacturing industry make use of crude oil derivatives. The current spurt in prices can stoke input cost pressures and profitability challenges for them and even end-user industries such as consumer goods. For a company such as Maruti Suzuki, which is trying to realign its product portfolio, the current uncertainty can pose additional challenges. Read our analysis here. Investing insights from our research team:Why investors got to pack these luggage stocks in their portfolioIndiaMart Intermesh: Room for growth as more players shift onlineDixon Technologies: Growth on track, margin feels the pinch; wait for more correctionWhat else are we reading?UP Elections Phase 7 | High-stakes battle in Purvanchal as SP gives BJP a tough fightA hawkish Fed is a bigger threat to the rupee than Russia’s warThe Eastern Window: Ukraine war could affect India's equations with ChinaRussia-Ukraine war — Selective trade intervention may be necessaryChart of the Day: Ukraine-Russia situation sends global food prices skywardsTechnical picks: Gold Mini, MTNL, GSFC and Nifty (These are published every trading day before markets open and can be read on the app) R Sree Ram Moneycontrol Pro