Recently Russia and Ukraine had a dialogue in Belarus to discuss the terms to stop Russia’s aggression but it did not end well. This has showed that Russia Ukraine conflict is not going to settle anytime sooner. Western countries including UK, France, and United States have slapped economic sanctions on Russia. European Union has already started targeting companies and individuals that have taken part in Russia’s aggression towards Ukraine.
Bank that are financing Russia’s military ambitions are also getting targeted for their support to Vladimir Putin. United States is freezing assets of Russian Banks that are present in US Borders. It is also banning any kind of fund raising that are getting hosted by state-owned enterprises. G7 countries including Canada, France, Germany, Japan, Italy, US, UK and EU have coordinated freezing of Russian finances. They have also put a ban on export of advance technology to Russia.
The value of Russian Ruble has declined by 41% and it is facing a huge cash crunch with people being worried about the prices of different products. This is happening at the time when economies were started getting a recovery from the major hit received by Covid-19 pandemic.
How Foreign Portfolio Investors Are Retracing Their Steps?
JM Financial Institution Securities said, “the flows to emerging markets are significantly dependent on a) direction of expected Fed rate trajectory (~26 percent probability), b) quantitative easing and size of the Fed’s balance sheet (46 percent), c) market risk premium (14 percent) and d) EM-specific factors, including EM-AE (advanced economies) growth differential (14 percent)”.
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Foreign portfolio investors were taking their money out every month since October last year and the pace is increasing over time. Over 10 billion dollars have been taken out since March 2021 and out of which 8.6 billion dollars have been taken out in last two months. JM Financial Report said, “Unlike the US, India’s Mcap/GDP (market capitalization to GDP) has risen to an all-time high of 115 percent from 56 percent in Mar’20 but corporate profit to GDP remains low even after rebounding to 2.6 percent from the all-time low of 1.1 percent in FY20 but is still much lower than 7.5 percent peak in FY08.”
What India Might Get From Russia Ukraine Conflict?
Experts are talking that India may get benefit of Russia Ukraine Conflict as exports to western countries might increase. EU is likely to follow China plus one strategy that might give a chance to Indian businesses to boost their exports. But the benefits gained due to increase in exports might get outweighed by rise in prices of crude oil and slowdown in economy of United States and European Union.
Certain sectors that will be hurt by rise in crude oil prices are infrastructure, industrials, public banks, cement, real estate, telecom and auto. JM Financial report said, “We would consider metals to be vulnerable to global factors emanating from the Chinese slowdown, the fallout of stagflation in US and Europe and the spillover impact of the Russia-Ukraine conflict. Sectors that are less vulnerable are private banks, consumer staples, pharma, utilities, upstream oil & gas and IT”.