Early on Thursday, Russian President Vladimir Putin announced military action against Ukraine. His actions have sent repercussions across the world, especially in the international and domestic financial markets.
The Indian stock market went tumbling as the India VIX value clambered up 107% from the year to date and Sensex, Nifty fell. Global markets also witnessed similar corrections.
Given this scenario, what does the future bode for investors across the nation?
In this blog, we will inform the reader, about the Russian-Ukraine scenario as of 24 February, Thursday and its impact on the mutual funds in India.
Take a look at the highlights of the Russia-Ukraine conflict and its impact on Indian markets.
Below are listed, not in any order, the key highlights of this story and its impact on mutual funds.
Firstly, historical data shows that markets crash before the war begins, and strengthen before the altercation ends. Overall, there is indifference to human calamity and that is to be expected from the Ukraine-Russia conflict, say experts. Consequently, equity mutual funds might take a hit while debt mutual funds’ value is likely to rise.
Secondly, there was a strong correction in stock markets globally, led by the Russian market index MOEX which crashed by 17 points. The US S&P 500 also fell by 1%. Indian stock markets also corrected as Nifty 50 dropped 3% and Sensex was down by 3.1%. This drop indicates that investors are reacting in a typical knee-jerk fashion.
Thirdly, the fear index, measured by India VIX, hit an index high of 33.97. Similar values were seen in the pandemic heydays of 17 June 2020. There is uncertainty on Dalal Street, and with upcoming assembly elections, Fed rate hike, commodity inflation and FII selling, that uncertainty isn’t going anywhere any time soon.
Fourthly, it is yet to be seen if US-led sanctions will affect Russia negatively.
Moreover, if the US removes Russia from the SWIFT global payments there could be discontent and trouble in Russia because of rising inflation, leading to a potential overthrow of Putin in the long run.
Fifthly, Brent crude oil is up at $97 and is a major headwind to the Indian economy. Hence, we are presently in a bull market, but experts advise investors not to buy stocks as the situation is still very fluid. The adage of “buy when there is blood on the streets” may hold once again, but for now, the situation is too unsettled to make a prediction either way.
Given this scenario, what should investors be investing in? Where should they put their money to appreciate capital? Take a look!
Since Brent crude oil prices have risen, it is time to avoid paint and tyres. However, note that India buys little oil and gas from Russia, less than 1%.
However, ONGC will gain and be a clear winner.
IT will continue to be a leader as it has many assured prospects.
Since FIIs have exited a lot of Indian companies, investors can put their money in high-quality financial institutions.
Gold has hit a high of $1913, making this precious metal a little out of reach of ordinary investors.
Energy prices have shot up and any investments in energy companies will begin to yield good results.
Real estate, infrastructure, capital goods and financials should be on the investor’s radar.
Therefore, mutual funds investment plans should be kept on hold, given the uncertain times.
VIX is India’s volatility Index, which is also known as the fear gauge and indicates investors’ perspective of the markets for at least one month. India VIX is based on the Nifty Options contracts.
Hence Indian Investors need not panic as yet, but wait until the situation stabilises either into full-scale war or comes to an end with diplomatic resolutions. The mutual funds in India have a greater threat from other headwinds such as assembly elections, rising inflation and crude oil prices. Hence, experts advise that buying up stocks during this downturn, may not be a good idea. Best move to make would be to wait and watch.
