Russia-Ukraine crisis shakes Indian markets, poses threat to financial stability

Russia-Ukraine conflict rattled the Indian equities markets on Thursday with key indices crashing by nearly five per cent, erasing over Rs 13 lakh crore of investors' wealth in a day.

Extreme volatility was witnessed in all asset classes in India after Russian President Vladimir Putin authorised military troops to carry out attacks against Ukraine.

Oil price soared to over $105 a barrel, the highest level in nearly eight years in the international markets.

In the currency market, the Indian rupee plunged 102 paise to end at 75.63 against a US dollar.

The Indian stock market's benchmark Sensex crashed 2,702 points or 4.72 per cent. This is the fourth-worst fall ever in an absolute term in the Sensex. The index suffered a loss of 2,850 points in the intra-day.

The broader Nifty 50 of the National Stock Exchange dipped 815.30 points or 4.78 per cent to 16,247.95 points.

This led to massive erosion in the investors' wealth. The market capitalisation of the BSE-listed companies dipped to Rs 242.24 lakh crore. It suffered a loss of nearly Rs 13 lakh crore in a day.

Investors tried to take refuge in bullion. Gold price surged by nearly 3 per cent to Rs 51,750 per 10 gram while silver price soared by over 3 per cent to Rs 66,556 per kg at the Multi Commodity Exchange (MCX) in Mumbai. This is the highest level of gold and silver price in more than a year. Gold and silver prices have surged by more than 8 per cent so far this month.

In the international market, spot gold price surged by 1.9 per cent to $1,943.86 per ounce, the highest level since January 2021. US gold futures jumped by nearly 2 per cent to $1,949.20 per ounce.

Stock markets are bleeding across the world after Russia's military action in Ukraine.

While the Indian stocks and commodities markets have already felt the tremors, the conflict in the Russia-Ukraine region is set to have huge implications on India's financial stability.

Finance Minister Nirmala Sitharaman said on Tuesday the rising crude oil prices amid escalating Ukraine-Russia tensions pose threat to India's financial stability and the government is closely monitoring the situation.

"It is difficult to say how it will go. Even today, in the FSDC, when we were looking at the challenges which are posed for the financial stability, crude was one of the things," Sitharaman said after chairing a meeting of the Financial Stability and Development Council (FSDC) in Mumbai.

One matter of comfort is that India buys very little oil and gas from Russia. Less than one per cent of Russia's crude oil exports come to India. So, no immediate disruption in supply of fossil fuel is expected.

However, the disruptions in supplies from Russia will further push the crude oil prices in the international markets. This will severely disrupt India's financial calculations.

According to former Reserve Bank of India Governor Raghuram Rajan, the impact of the Russia-Ukraine crisis would not be limited to just oil and gas. It will impact various other essential commodities.

Apart from fossil fuels, India is also heavily dependent on imports to meet the demands for edible oil. The conflict in the Russia-Ukraine region is also likely to lead to a significant jump in edible oil prices in the international markets.

This will widen India's trade deficit and worsen inflationary pressure.

High crude oil and other commodities prices will upset the government's Budget math, presented in Parliament by Finance Minister Sitharaman on February 1, 2022.

The Economic Survey has assumed crude-oil prices at $70-75 per barrel. The budget calculations are based on this. If the oil price remains above $100 a barrel, it will considerably upset the Budget math, be it financial and revenue deficits, inflation or GDP growth.

JPMorgan Chase & Co earlier this week had said that the oil prices are likely to average $110 a barrel in the second quarter 2022 calendar year due to the Russia-Ukraine conflict. The bank had further said that the crude market is likely to see sustained higher prices in the next quarter, before retreating to an average of $90 at the end of the year.

According to brokerage firm ICICI Securities, the Russia-Ukraine conflict will have two-fold impacts on the Indian economy. "Higher crude oil prices will keep CPI inflation higher for longer, obliging the RBI to raise rates more than the two hikes we expected in August-December 2022 unless the government sharply cuts excise duties on petrol and diesel to contain fuel inflation," ICICI Securities said in a note.

( With inputs from ANI )

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