European Union leaders may have pledged to impose tough financial sanctions on Russia, but there is lack of consensus over cutting the country off SWIFT; the international financial payment protocol. SWIFT is based out Belgium and is used by over 11,000 institutions globally to move money from one bank to another bank in a different country. Ukraine has requested for the removal of Russia from SWIFT but EU leaders are unconvinced as it will have serious consequences for EU, with deep economic links with Russia.
The rupee went into a virtual free fall on Thursday amidst the Ukrainian crisis even as the dollar hardened and Brent Crude crossed $100/bbl. Several Indian banks started buying dollars on behalf of OMCs after crude crossed $100/bbl, which pushed the rupee to as low as 76/$, before closing the day at 75.65/$. The rupee had been gaining ground in recent weeks on hopes that the LIC IPO would lead to a surge in FPI inflows. However, experts from Mecklai Financial expect the rupee to weaken as low as 76.40/$ shortly.
Gold ETFs as well as ETFs on other precious metals saw massive inflows as investors rushed to safety. The trend was visible in the light of heightened geopolitical tensions between Russia and Ukraine. While gold ETFs saw $7.8 billion outflows last year, the inflows were to the tune of $4.7 billion in 2022. SPDR Gold Shares led the way with inflows worth $3.2 billion, while silver ETFs were not too far behind. In a sense, the Russian attack on Ukraine has markets in panic mode. Palladium and platinum too surged on 24-Feb.
Apollo Hospitals will replace Indian Oil Corporation on the Nifty-50, effective from 31st March. There have also been changes to other key indices on the NSE. For instance. Paytm, Nykaa, Zomato, IOCL, Mindtree and SRF find a place in Nifty Next 50 index. Some of the stocks moving out of the Nifty Next 50 include Apollo Hospitals, Aurobindo Pharma, HPCL, IGL, JSPL and Yes Bank. All these changes will be effective from 31st March. The indices changed the minimum listing history requirement from 1 month to 3 months.
In a significant signal to the global investment community, the Indian government has refunded Rs.7,900 crore to Cairn Energy bringing a close to the dispute over retrospective taxes. Cairn has received net proceeds of $1.06 billion, which it plans to distribute to its shareholders. Cairn Energy, now Capricorn, has already withdrawn all lawsuits against the Indian government. This was done under a special settlement scheme announced by the government last year and seeks to nullify the tax demands raised back in 2012.
One of the big mysteries for global markets is how oil traversed from near zero levels during the pandemic up to $100/bbl in less than 2 years. Post COVID, most analysts had predicted that demat would take a long time to recover, but they have been proven wrong. It is not just that demand has picked up, but even the internecine supply wars between the US and OPEC have come to an end. In 2021, global oil demand outstripped supply by 2.1 million bpd. Eventually, it was delay in supply revival that really spiked prices.
Japan imposed sanctions on Russia targeting semiconductor exports. This was confirmed by the prime minister, Fumio Kishida, after G7 leaders agreed to punish Moscow economically. On 24-Feb, Putin launched an all-out war on Ukraine, reaching the outskirts of Kyiv. Apart from chip exports, Japan plans to cut other critical exports to Russian military-related organisations. G7 is dominated by North America, Europe and Japan. Tokyo has already banned the issue and trade of Russian government bonds in Japan.
In the minutes of the Monetary Policy Committee (MPC) meeting on 24-Feb, RBI governor underlined the need for continued support. It may be recollected that in the policy announced on 10-Feb, the MPC had chosen to maintain status quo on repo rates, reverse repo rates and stance of the monetary policy. The sole voice of dissent was that of Jayanth Varma, who believed that the shift from accommodative to a more neutral policy stance should have happened long back. Ukraine war may change these equations.