Russia-Ukraine Conflict | Prices of commodities from Russia will remain high regardless of sanctions, feels Arvind Sanger of Geosphere Capital

Sanger feels that the situation is “going to be inflationary” regardless of the US and the European Union imposing sanctions on Russia.

“Threats of sanctions do raise global risk factors, but oil markets were already tight on supply-demand basis and there was news of Iran talks not going well. So oil is going to get to $100 a barrel with or without sanctions. If sanctions happen, it could touch $150 per barrel. Natural gas prices in Europe are already at 150 euro and for any sanctions in Russian gas they could go to 300 euro,” he noted.

“I don’t think Europe or the world can afford sanctions. But anytime tensions rise, prices of commodities that come out of Russia will remain elevated regardless of hard sanctions. This is just risk adjustment for what President Vladimir Putin will do next, where Russia will go and what the West will do.”

Sanger said that the rupee rebounded sharply over the past few days, and that “from an inflation or current account deficit measure this is going to be negative for India and potentially for the rupee”.

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Could the Indian market take this in stride?

Sanger felt they could. “I am impressed with the fortitude of Indian retails investors and Indian institutional buyers – they have stepped up and continued to buy. But at the end of the day it depends on what happens in global markets, India is not an island,” he said.

He noted that if things remain under control — such as mild sanctions and President Putin not going further than the eastern Ukrainian regions, “then maybe markets may have a 1-2-day short scare and then go sideways-to-up. That’s certainly the most optimistic case. The mildly pessimistic case is rising commodity prices, tightening interest rates and liquidity in the West,” he felt.

Both of these factors combine for some economic pain and cause sharper correction, he noted, adding: “It is not by any stretch the end of an economic cycle – we’re just at the beginning of it – but corrections when they happen don’t usually end down 10 percent. In my opinion it would be fairly unusual if global markets avoid the whole risk without meaningful correction.”

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What should investors do?

“Patience is a virtue in these times. Having clear target prices for companies that people believe in long term is good. Having companies with strong earnings not impacted by high energy prices or squeezed by high inflation – that’s an important point. And in that sense, putting money to work in the next few days and weeks, but being clear-eyed about what sectors you are buying. Patiently buying in the right sectors is as important as whether to buy or not,” Sanger stated.

Watch full video for interview discussing correction in IT stocks, possible asset reallocation, views on inflation & the RBI’s measures