The Effects Of War: Stocks Crash, Commodity Prices Shoot Up
By Ashwini Agarwal
First publised on 2022-03-08 03:11:39
About the Author
Even as successive rounds of talks between Ukraine and Russia have failed to yield any positive results and the war shows no signs of ending even after 13 days, crude and commodity prices have zoomed up causing intense pressure on economies around the world. The Indian economy is under tremendous pressure as input prices are rising making production of goods costlier. Pump prices had remained frozen for four months due to state elections. But with the voting over, there will be a steep rise in fuel prices, leading to further inflation.
The nervousness in the stock markets has been visible for the last two weeks. Investors fear that with no demand for goods and services, the companies will not be able to pass on the rise in input costs to the consumers as that will reduce demand further. If companies absorb the costs even partially, it will affect their earnings. This has pushed stock prices down and the market is firmly in the grip of bears.
On Monday, the Sensex fell by 1491 points or 2.74 percent to end at 52842. It has fallen over 7.6 percent since the war began. There is huge volatility in each session and the VIX, or the volatility index, shows that there is uncertainty in the markets. The decline is broad-based although some commodity stocks have bucked the trend.
The Indian rupee touched 77 per US dollar and entered unchartered territory. This will put a huge pressure on the current account deficit and imports will become costlier. Since a section of the Indian industry is dependent on many imported inputs, this will result in a double whammy, with commodity prices already high. The turmoil in the financial markets and the freeze on Russian banks will also impact exports, the one area where India was performing outstandingly. Gold has also touched Rs 53000 per 10gm, its highest level in 8 months as investors look for safe havens.
This is just the beginning as most experts are of the opinion that the real effects of the Western sanctions on Russia will happen after a time lag. The Indian economy is in for hard times as Russia is bent on destroying Ukraine to achieve its geopolitical goals. It is another matter that it will have to bear a huge economic cost for the same. But what matters is that the Indian economy will be pegged back due to Russiaâs misadventure.
