The war between Russia and Ukraine does not change market fundamentals. India continues to be the growth story
By Joydeep Sen
Over the past two to three weeks, investors have been monitoring global developments not only from a human or emotional perspective, but also from a monetary perspective: tracking global stock market movements, Indian market indices, crude oil prices, metal prices, rupee weakness, current account, and what not. Last but not least, the movement of the portfolio’s market value.
Yes, these are all relevant. That said, let me give you a perspective. When you watch TV, you have no control over what they show on a channel. You may like it, dislike it, but all you have control over is your remote; you can switch to another channel. The analogy is that the market is like TV channels that you have no control over. The remote control is your portfolio, which you can modulate yourself. Every day there will be an event or development in markets; you don’t have to respond to everything. It’s good to be aware of the developments, to keep your feelers high, but your portfolio doesn’t have to change every day. Only do this if there is a fundamental change in the underlying market or fund in which you have invested.
Crude, commodities impact
That said, where are we? There are worldwide wars going on, only a small part of them with weapons. The pandemic originated in one country and has affected the entire world and changed the way we live. In an unofficial, unannounced fashion, one country dominated the world. Today there is war between Russia and Ukraine, but global comparisons are changing. It is about control over resources; a war of domination. The US is the world’s largest producer of crude oil, but needs a little more given its high consumption. If the price of crude oil goes up/stays on the higher side, it won’t help them.
Currently, they must be seen doing the right things because of political coercion, hence the ban on crude oil from Russia.
Ironically, higher crude oil prices help Russia as an exporter. Even if it sells a lower quantity, at higher prices, Russia is in first place. There is a saying that the antidote to higher crude oil prices is higher crude oil prices as people look for alternatives. The US is in talks with Iran and Venezuela for more supplies. The winter season is coming to an end, which means that the need for energy for heating in the Northern Hemisphere will be less.
Markets go through bumps
On a net basis, it is only a matter of time before the price of crude oil drops from the current high levels. In terms of metal prices, fertilizer prices, etc. — yes, with sanctions against certain countries, the supplying countries will take a leading position. However, global growth is now normalizing. There was a phenomenon called ‘revenge demand’ meaning that during the pandemic or the subsequent lockdowns, people couldn’t get out of their homes or consume as much as in normal times, they were consuming more than usual when business opened. This led to higher demand and higher prices. As the growth rate normalizes, the demand-accelerating portion of inflation should decline.
Are these developments changing the fundamentals of the market? New. The world has seen worse times in 2020. India continues the growth story, with or without any increasing impact on inflation, the current account deficit or the rupee level. The stock market was ready for a correction and it did. Going forward, the stock market is expected to go through bumps and not be a smooth ride up, which you should be prepared for. Central banks around the world, including India, are poised to normalize interest rates (read hike) and that hasn’t changed. Gold may look attractive in uncertain times, but the allocation in your portfolio should be balanced and unaffected by recent events.
The writer is a business trainer and an author