The Russia-Ukraine war does not change market fundamentals. India remains the growth story.
Over the last two to three weeks, investors tracked global developments, not only from the human or emotional perspective, but also from the monetary point of view—tracking global stock market movements, Indian market indices, crude oil prices, metal prices, rupee weakness, current account deficit, and what not. Not the least, portfolio-market-value movement.
Yes, all these are relevant. Having said that, let me give you a perspective. When you are watching TV, you have no control over what they are showing on a channel. You may like it, not like it, but the only thing you have control over is your remote; you can shift to another channel. The analogy is, the market is like TV channels over which you have no control. The remote control is your portfolio, which is up to you to modulate. Some event or development will happen in markets every day; you need not react to everything. It is good to be aware of developments, to keep your antennae up, but you need not change your portfolio every day. Do that only when there is a fundamental change in the underlying market or the fund through which you have invested.
Crude, commodities impact
Having said that, where do we stand? There are global wars on, only a small part of which is with weapons. The pandemic originated in a particular country, and it impacted the entire world and changed the way we live. In an unofficial, un-announced manner, one country dominated the globe. Today, there is war between Russia and Ukraine, but global equations are changing. It is about control over resources; a war of dominance. The USA is the biggest producer of crude oil in the world, but given its large consumption, requires a bit more. If crude oil price goes up / remains on the higher side, it is not going to help them.
Currently, they have to be seen doing the right things due to political compulsions, hence the ban on crude oil from Russia.
However, ironically, higher crude oil prices help Russia as it is an exporter. Even if it sells a lower quantum, at higher prices, Russia is at square one. There is a saying that the antidote to higher crude oil prices is higher crude oil prices, as people start looking for alternatives. The US is in talks with Iran and Venezuela for increased supplies. The winter season is coming to an end, which implies that the requirement for energy for heating in the northern hemisphere would not be as much.
Markets going through bumps
Net-net, it is a matter of time before crude oil prices ease from the current elevated levels. Coming to metal prices, fertiliser prices, etc., — yes, with sanctions against certain countries, the supplier countries will have a commanding position. However, global growth is normalising now. There was a phenomenon called “revenge demand” which means since people could not come out of their houses or consume as much during the pandemic or consequent lockdowns as in normal times, they consumed more than usual when things opened up. This led to higher demand and prices. As and when growth rate normalises, the demand-pull part of inflation would ease.
Do these developments change the fundamentals of the market? No. The world saw worse times in 2020. India remains the growth story, with or without some incremental impact on inflation or current account deficit or rupee level. The equity market was due for a correction, and that has happened. Going forward, it is expected that the equity market will go through bumps and not be a smooth ride upwards, which you have to be prepared for. Central banks all over the world, including India, are set to normalise (read hike) interest rates and that has not changed. Gold does look attractive in uncertain times, but allocation in your portfolio should be balanced, not influenced by recent events.