Moneycontrol Pro Panorama | War bugle shakes financial assets, barring gold

In an era where nations are interdependent in more ways than one, any form of war would have far-reaching consequences. Not surprisingly therefore, it is a torrid day for financial and commodity markets with volatility visible across asset classes.

Oil price crossed the US$103 per barrel mark – the highest since August 2014. Russia is a major oil and gas exporter with a large part of its supplies catering to Europe’s needs. The fear is that apart from infrastructure losses due to war, sanctions imposed by the West on Russia are bound to cause unforeseen disruptions in global oil and gas supplies. This piece explains the implications of sanctions on Russia for global economies.

Meanwhile, other commodities that had seen prices letting up slightly in the past few months are likely to stay elevated for some time. Rising oil and commodity prices are inflationary for economies.

Further, any geopolitical tension is bad news for forex markets and global currencies are already gyrating since news of war broke out. The Indian rupee also plummeted against the dollar today.

The Russia-Ukraine tensions have pummelled world equity markets too. Indian equities were not immune and trading screens were flashing red. The BSE Sensex was down 1400 points, while Nifty fell by about 500 points (around noon). The India VIX index was up 22 percent in its biggest move in many months, with the sell-off being more severe in the broader market than just large-cap stocks.

It's a dark day for investors with all asset classes in a tailspin except gold. The precious metal shot up to its highest level in a year being the only asset class to hold up during times of distress and emergency.

However, that Putin did not heed any counsel or talks by the West to prevent war or the UN’s desperate plea to stop “in the name of humanity” or “give peace a chance” does not mean a Russian victory or that there will not be a price to pay.

In today’s edition, we have interesting reads related to Russia-Ukraine conflict -- how Russia is poised to handle sanctions, an FT piece on why the West must show greater resolve over Russia’s aggression and how the Great Powers spend on their military.

As for investors in Indian equities, amid the sirens of war, analysts and industry veterans have reasons for hope. The Indian government has maintained a neutral stance so far on the Russia-Ukraine issue, its large domestic economy has proved to be resilient during several global meltdowns, public expenditure is sustaining, private sector capital expenditure is slowly making a comeback and corporate balance sheets are healthier than pre-pandemic times.

While markets may remain turbulent in the near term, once the situation normalises, India's relative strengths will come to the fore and lift equity markets.

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Vatsala Kamat

Moneycontrol Pro