Impact of Russia-Ukraine War on Indian Economy by Ajay Amar Associates

The BFSI sector of any country is impacted by the national macro-economic factors and the global political-economic scenario. Additionally, globally disruptive events like the Covid-19 pandemic are pushing the industry towards digital transformation and process innovation. And while such occurrences are rare, their impact is lasting.
The Ukraine-Russia war is another such event which is currently leaving a marked impact on the Indian economy and financial system. Despite India’s maintained neutral political stance and limited dependence on Russia and Ukraine for imports (2.1%) and exports (1%), their conflict affects GDP growth from India.
As global crude oil prices have soared due to the conflict, India’s macroeconomic stability is under threat and GDP forecasts have been lowered to 7.9% for 2023 by Morgan Stanley. This, in turn, should rock banking and financial services as well as the equity market. Here are the top trends expected to emerge over the coming quarters, according to our research team. Ajay Amar Associates Nagpur.
Rise in inflation
A global rise in crude oil prices will translate into higher domestic inflation for Indian markets. According to RBI, inflation in the financial year 2022-23 is expected to be 4.5%. Rising commodity prices for metals, fuel, edible oil and various other products are early indicators of this trend. In addition, rising consumer price inflation may dampen consumer spending and discretionary investment. This should further lead to an increase in the current account deficit, which will weaken the value of the rupee against the dollar.
Increase in interest rates
The RBI will revise bank interest rates to protect the weakening rupee. As a result, secured and unsecured credits, such as home loans, car loans, personal loans, etc., will become expensive. At the same time, the rate of return on products such as fixed and recurring deposits will improve, encouraging consumers to spend less and save more.
Share market volatility
As global supply chains are disrupted due to rising crude oil prices, equity market investments may see a downturn, as evidenced by recent stock index volatility. To Ajay Amar Associateswe believe that improving interest rates on bank deposits may also encourage investors to turn to these financial instruments, away from the volatile stock market.
Jump into the defense sector
India accounts for 25% of Russia’s arms exports each year. With the Russian-Ukrainian war far from resolved, India’s defense sector is likely to gain popularity. In the current Union budget, the Indian government has allocated more than $70 billion for military expenditure. This would see the defense sector grow at an unprecedented rate and provide lucrative investment opportunities for retail and institutional investors.
Overall Bear Market Sentiment
Unlike the bullish market sentiment of 2021, which saw the launch and oversubscription of several mega IPOs, 2022 is likely to remain bearish. The postponement of the IPO of LIC by the Indian government is an indicator of difficult times ahead. We at Ajay & Amar Associates Nagpur believe this could mean fewer wealth-building opportunities for retail and institutional investors.
Stricter banking rules for exporters
With the ruble in trouble and more than $400 million in export duties still stuck in Russia, the 2022-23 financial year will be difficult for exporters. In addition, banks have tightened their corporate lending rules, fearful of non-performing assets in a faltering global economy. This could slow growth in some sectors and further halt the equity market rally.
In conclusion, in a turbulent market, the BFSI sector will benefit from shifts in interest and emerging industries. However, at the same time, rising inflation and falling value of the rupee may lead to reduced investment activities. Therefore, in order for institutional and retail investors to adopt a measured investment approach, referring to experts in Ajay Amar Associates in Nagpur before investing in debt securities or equity-based instruments can prove profitable.

Disclaimer: Content produced by Ajay & Amar Associates

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