Investors panic as geopolitical tensions rise

The rally in crude oil prices has raised concerns for investors in a country that is the world’s third largest oil importer and consumer.

BSE Sensex and Nifty 50 fell 0.66% and 0.67% respectively, reflecting weakness in stock markets across the world. Asian markets such as Hang Seng, Nikkei, Taiwan, Shanghai and Jakarta Composite indices ended the day lower by 0.59-2.69%.

Oil prices rose Tuesday to their highest intraday level since September 2014, when Moscow ordered troops into two separate areas in Ukraine, adding to an already tight supply scenario and pushing prices toward $100 a barrel. pushed.

Rising oil prices pose a major threat to the Indian economy, which is reflected in the outlook for Indian equities.

“Rising crude oil prices will not bode well for India as it is a net importer of crude. This will adversely affect our balance of payments, slow down overall growth and be inflationary. Aishwarya Dadhich, fund manager, Ambit Asset Management, said, “This could weaken equity markets in the short term.

Risks have risen, according to S&P Global Platts Analytics, and further bullish oil prices cannot be ruled out. It added that if Russia-Ukraine tensions escalate to a level where there is some sort of direct conflict, oil prices could potentially exceed the $100/barrel level.

Paul Hickin, director of S&P Global Platts, said that “the global economy may face short-term price spikes, but spikes with higher peaks and longer periods do a great deal of damage to global oil demand and its recovery to pre-pandemic levels.” “.

Experts said rising oil prices remain the biggest macro headwind for India. VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said the inflationary consequences will force the Reserve Bank of India (RBI) to give up its soft monetary stance.

Experts said the impact of supply disruptions due to ongoing geopolitical tensions could be significant for India as oil prices are already running high.

Pritam Patnaik, Head Pritam Patnaik said, “This will add to inflationary pressures in both PPI (Producer Price Index) and CPI (Consumer Price Index), which coupled with low/slow economic growth is not a good essay for capital markets. ” -Commodity, Axis Securities This may force the RBI to raise rates to control inflation, which may impact stocks, he said.

India imports more than 80% of its crude oil needs. Therefore, any rise in crude oil prices poses inflationary and fiscal risks to the economy and impacts the current account deficit. The direct share of crude oil-related products in the Wholesale Price Index (WPI) basket is over 9%.

Bank of Baroda Chief Economist Madan Sabnavis said a 10% increase in oil prices would lead to a 90 basis points increase in WPI inflation. One basis point is 0.01%

Higher prices will further increase India’s oil import bill, affecting its external position.

Experts said the current uncertain scenario may prompt foreign institutional investors to continue holding on to Indian equities.

FIIs overall have been net sellers of Indian stocks 53,112.25 crore in 2022, although domestic institutions have supported well 40,750 crore was purchased.

Amnish Aggarwal, head of research, Prabhudas Lilladher, said, “The confluence of global adversities and rural slowdown has halted the one-way march of the past 18 months, resulting in some of the foam being removed from the markets. We believe the Fed Rate hikes, crude oil prices and global geopolitical risks could result in volatility and correction in the near term. In addition, slowdown in rural demand and rising inflation (due to crude oil and supply-chain disruptions) could result in near-term has concerns.