This Article is From Mar 04, 2014

How the Ukraine crisis could impact India

How the Ukraine crisis could impact India
Russia's military intervention in neighbouring Ukraine pressured global stocks on Monday, but markets rebounded on Tuesday after President Vladimir Putin ordered troops involved in a military exercise in western Russia back to base in an announcement that appeared intended to ease East-West tension over fears of war in Ukraine. In India, the Sensex surged over 1 per cent, while the rupee pulled back below 62/dollar even though Moscow's forces remained in control of Ukraine's Crimea region.

Here's how the Ukraine standoff could impact India

  1. Stock markets: Indian stock markets have seen modest gains in February, so there might be some correction if the standoff between Russia and the West over Ukraine escalates. Tobias M Levkovich of Citigroup says recent events in Ukraine could unsettle euphoric markets but should not be that disruptive. Barring a breakout of major hostilities though, a severe decline in share prices seems rather unlikely, he added.

  2. Rupee: The rupee weakened to 62.14 against the dollar amid broad dollar gains against emerging market currencies on Tuesday. The RBI is likely to support the rupee at lower levels, as it has done in the past. However, an escalation in conflict may pressure the rupee, which will be negative for stocks and the overall economy.

  3. Oil, gold prices: Commodity prices tend to rise in conflict situation, so crude and gold prices are expected to rise. Gold prices are already trading at a four-month high. Gold imports to India have come down sharply over the last few months, so a rise in gold prices might not adversely affect the economy, but rising Brent prices will be a disaster for the country. That's because India will have to spend more dollars to buy Brent as it is dependent on imports for its energy needs. This will pressure the rupee and may lead to a rise in the current account deficit.

  4. Investment: Foreign Institutional Investors (FIIs) have been buyers of Indian stocks for 12 straight sessions till Monday and sentiments will be bullish as long as they are buyers of Indian stocks. However, escalating geo-political tension may force foreign investors to repatriate funds, which will be negative for stocks and rupee.

  5. Exports: Ukraine is not a major export destination for India, so from exports perspective the impact on the economy will not be significant, Saurav Mukherjea of Ambit Capital told NDTV.