Moneycontrol Pro Panorama | Putin keeps finger on trigger, sparks fly

Vladimir Putin (file image)

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Indian stock markets slumped in Tuesday’s trade, tracking the losses in global equities. Stocks fell after Russia’s President Vladimir Putin said he would deploy troops in the breakaway regions of Ukraine. The territories, Donetsk and Luhansk, border Russia.

Observers fear Russian troop deployment in the regions will ratchet up conflict with Ukraine. Russia is already claiming casualties on the Ukrainian military side. The development suggests Putin’s diminishing faith in diplomatic efforts, warns this FT column. The piece also provides historical background of the troubled territories, whom Russia is now recognising as independent regions.

The move is expected to attract renewed sanctions from the US and its allies. For markets, the development poses new risks to the global economy.

Brent crude oil futures rose above $97 a barrel and there are fears that conflict with Russia will worsen imbalances in the natural gas market. Russia is a major producer of gas. The rise in energy prices can further drive up feedstock costs for the domestic industry. Also, one has to await the impact of conflict on global supply-chains, which are yet to recover fully from the COVID-induced disruption.

Worryingly for stocks, the conflict comes amid raging inflationary pressures and reversal of the ultra-loose monetary policies by central banks. As such, rising interest rates and reducing global liquidity are feared to undermine equity market valuations.

If the current conflict worsens, then India’s premium valuations can be increasingly questioned. Jefferies India warns India is seeing a prospect of ‘twin' deficit over the next 12 months. High commodity and energy prices are threatening to keep the current account deficit (CAD) under pressure while the Union Budget indicated elevated fiscal deficit vis-à-vis pre COVID levels.

“We estimate CAD at 2.5 percent of GDP in FY23 ($80/barrel assumption), 10-year high. Meanwhile, the Centre's 6.4 percent FY23 fiscal deficit target has already caused concerns in the bond market,” analysts at Jefferies India said in a note.

Of course, the incoming data are yet to capture the risks. Services sectors are reopening and more states, countries are removing COVID restrictions. The Nomura India Business Resumption index rose to a record high in the week to February 20. But recovery is uneven and analysts warn about prolonged inflation pressures. Petrol and diesel prices are restrained amid elections in states.

“The underlying recovery remains uneven, with services and consumption sectors sluggish, even prior to the third wave,” warns Nomura Research.

Investing insights from our research team:

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Easy Trip Planners – the right stock to add in the volatile market?

Steel Authority of India Ltd: Operating profitability to remain under pressure

Indraprastha Gas: Pricing power, volume to help offset higher input cost

Blue Star, Voltas or Amber Enterprises: Which is the best buy?

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Technical picks: ICICI Bank, Linde India, Divi’s Lab and Axis Bank (These are published every trading day before markets open and can be read on the app)

R Sree Ram
Moneycontrol Pro