How investors can navigate through the Russia-Ukraine crisis?

Sectoral impact

Immediate effect in such a situation is not only seen in stock market movement alone but in oil, gold prices and certain sectors as well. 

The border situation between the two countries has led to oil on the boil. Brent crude reached $100 per barrel on February 24, 2022. It crossed that mark for the first time in 8 years. JP Morgan expects the oil prices to go up anywhere between $120 to $150 per barrel if oil flow from Russia is disrupted. 

While India’s impact on the current crisis may not be direct, the effects of the crisis could still impact the country’s economic growth. As per various media reports, Russia is the 25th trade partner for India (in terms of exports value in 2022). With sanctions imposed by multiple countries, India’s exports could get affected. These mainly include tea, mobile phones, and pharmaceuticals. Similarly, India imports crude oil, coal and diamonds from Russia. It could disrupt the supply for the country temporarily.

• Payments issue

As part of the sanctions imposed by the US and EU, most Russian banks have been blocked from the SWIFT payment system. SWIFT is a payment network that ensures quick cross-border payments globally. With the blocking of the Russian banks from the payments network, it will be difficult for Indian traders to make/receive payments from their Russian counterparts.

On the positive side from India’s perspective, once the dust settles, the demand for Indian exports could be higher if supplies from Russia are disrupted. For the EU, Russia is one of the key trade partners and in its absence, India could be an alternative. 

What’s after the crisis? 

Once past the initial shock, the next wave determines whether the impact is short-term or long-term. 

First, if this war-like situation continues, it could disrupt the already strained supply chain. The whole supply-chain ecosystem is recovering post the lockdown restrictions globally. Russia is the world’s largest exporter of wheat, soybean, and other commodities such as aluminium and nickel. 

Two, with many world leaders imposing sanctions on Russia, it could drive up inflation on these commodities and indirectly impact the related sectors. Fuel prices too are likely to go up as the supply of crude oil is yet to pick up the pace. 

And lastly, there are chances that inflation is likely to rise across economies faster than expected. Thereby affecting economic growth. 

Thus, while experts may not have an idea on how things will pan out for Russia, Ukraine and the rest of the world, the immediate effects appear clear: the rise in prices of food and fuel and disruption in the supply chain. And volatility in your investments. 

How to plan investments during an economic crisis

Irrespective of an economic crisis, you may need a large amount if there is an emergency. Here’s how to prepare financially. 

Emergency fund

As the name implies, you could build a fund just for emergencies. Many financial advisors recommend having 3 to 6 months of your salary as an emergency or contingency corpus. You could have these parked either in bank FDs, savings accounts or even in liquid mutual funds. But having this fund is important to get you and your family through a crisis, be it economical or personal or medical.

Equity investments 

There are a few points to keep in mind. 

One, equity investments are generally made for the long-term. If you have invested in fundamentally good stocks, it is better to hold your investments. Even if the market continues to be volatile or if your investments are in the red, fundamentally good stocks usually recover. Likewise, if the entire sector is affected, financially sound stocks recover in the long-run.  

Two, during a crisis, the markets correct. It may provide buying opportunities for you as an investor. Keep an eye for such opportunities. But do keep in mind that you could be in a crisis, so ensure that you have sufficient funds to handle any financial emergencies before you make fresh investments. 

If you are a seasoned trader, you could use the current volatility to your advantage by using multiple strategies such as stop-loss (for hedging). Also, you could set a specific target price or profit percentage for stocks you are trading (so you could make a timely exit). And check technical charts for consolidation or breakouts.

However, if you are new to trading, it is better to wait and watch. 

Mutual Funds

Volatility in the equities market affects mutual funds investments as well. 

In such situations, the ongoing SIPs can continue as you would benefit from rupee-cost averaging. 

If you had made a lump sum investment, it could be better to hold them until the market recovers. No point in selling them, if you are incurring losses. One could also consider fresh lump sum investments if it is within your financial means. 

Diversify

Diversification helps in balancing your portfolio. Normally, during any crisis, gold as an investment outperforms. Having exposure to various asset classes could bring down your losses due to volatility. 

Final take

While markets tend to be volatile in the short-run, in the long-run, if invested in fundamentally and financially sound companies, things could work out well for investors. After all, long-term investments lead to wealth creation.