Today both Sensex and Nifty were almost down more than 1.5%. There are many reasons behind the ongoing volatility in the Indian stock market such as rising global inflation, expectations of an interest rate hike by the US Fed, crude oil prices hitting record levels, and foreign investors’ capital outflow from the Indian market.
But the biggest reason that seems to be emerging among all these is the escalator of border tension between Russia and Ukraine.
For the past few months, there have been reports that there could be a war between Russia and Ukraine.
Russia Ukraine history explained
In 1991 the Union of Soviet Socialist Republics (USSR) was fragmented in almost 15 different countries. Both Russia and Ukraine were part of the USSR which became separate independent countries after 1991.
However, even before the formation of the Soviet Union or the USSR, there were many points in history when both Russia and Ukraine were part of the same empire.
And there were many instances when Ukraine was not part of the Russian Empire but was ruled by other parts such as Polish-Lithuanian Commonwealth, Austria-Hungary, and Ottoman Empire.
Ukraine was established as an independent nation in 1917 but became part of the Soviet Union back in 1922. After the dissolution of the USSR in 1991, Ukraine regained its independence.
Russia-Ukraine crisis 2022
Russian President Mr. Putin recently said that Ukraine and its people are a critical part of Russia’s history of culture. Now some people of Ukraine and some politicians are pro-Russia and want to join Russia.
And the majority of these people are in Eastern Ukraine which is connected with the Russian border. But others are in favor of maintaining Ukraine as an independent nation by joining the European Union and NATO (North Atlantic Treaty Organization).
And if you look, both Ukraine and Russia share a significant portion and border and all from the western side which is part of NATO like European countries and US.
Japan is also a part of NATO from the Eastern side, so if Ukraine also becomes a part of NATO, which shares such a significant border with Russia, then Russia will not like it at all.
Why Ukraine joining NATO is such a big deal
This is because according to an article in the Treaty of NATO, if there is an attack on any NATO country, then all other NATO member countries will provide military support to that country. And therefore Russia does not want Ukraine to be a part of the European Union and NATO under any circumstances.
However, in a meeting between the President of Ukraine and the Chief of NATO on 16 December 2021, Ukraine expressed its commitment to join NATO. And Russia and Putin did not like this thing, so Russia is supporting those who are pro-Russians on the eastern border of Ukraine.
A few days ago, the US National Security Advisor even said that Russia can invade Ukraine at any time. In such a situation, many countries have also asked their citizens to come back from Ukraine.
According to the latest updates, Russia has declared Ukraine’s two eastern regions, Luhansk and Donetsk, as independent regions. In response, the US has also announced financial sanctions against these territories and can also impose sanctions on Russia.
In such a situation, the Security Council of the UN has also called an emergency meeting between Ukraine, the US, Mexico, and the Five European Nations.
All these tensions are having a huge impact on the financial market as well. Whether it is equity markets or crypto markets and its impact will also be on the Indian economy. This is because Russia is a commodity export powerhouse.
Russia is the largest exporter of crude oil and natural gas. Apart from this, Russia is a key supplier of many metals such as aluminum, copper, etc., and Agri products such as wheat to many countries.
And if a trade or economic sections are imposed on Russia, then all those countries which import goods from Russia will be affected. And India is one such country. India is a net importer of crude oil and an increase in oil prices will have a huge impact on the economy.
Similarly, crude oil prices may also touch $100 per barrel, which will have an impact on the price of all goods and services and will also lead to a rise in inflation.
Due to these uncertainties and negative sentiments, large investors and institutions prefer to withdraw their capital from equities and invest in safe havens such as bonds or gold. That’s why gold prices have been going up for some time now.
Apart from this, due to increasing globalization, the economy of all countries is dependent on each other. And if there is a big economy like Russia, China, the USA, India, or European Union, then any kind of geopolitical or economic tension affects the whole world.
This is the reason why the Indian equity markets are seeing a very negative impact due to the rising tension between Russia and Ukraine.
This article is only for education purpose and the author has his own views and research, so if you invest in these stocks then do it at your own risk and do the research yourself before investing.