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Stocks and rupee plunge, crude on the boil: Why is it happening, and what should you do?

Stock markets on Monday (March 7) morning plunged by up to 3.25 per cent and the rupee plummeted to 76.96 against the US dollar as crude oil prices flared up to a 14-year high of $138 per barrel level amid the escalating Russia-Ukraine war.

The BSE Sensex, which crashed 1,791 points (3.29 per cent) at one stage, was quoting 1,451 points lower at 52,883.38 and the NSE Nifty Index was 416 points down at 15,829.25 at 10.55 am IST on sustained selling across the board.

The small-cap index was trading 2.48 per cent down and the mid-cap index was 2.54 per cent lower. Realty, bank, finance, auto and capital goods indices and shares fell up to 4.7 per cent.

Why are stocks falling?

Oil prices jumped 8.50% on Monday morning morning in panicked early buying in futures markets after weekend reports that the US was looking at completely banning Russian oil imports, and the Russians themselves inserted some hefty last-minute demands on the US in the small print of the almost-finished Iran nuclear deal, said an OANDA report.

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“With the latter in jeopardy, and the former sure to lead to higher domestic prices, it is no surprise that Asian traders, a region heavily reliant on imported energy, pushed the panic button,” said Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA.

The Sensex has now fallen 7.66 per cent after the Russian invasion of Ukraine started on February 24.

OANDA said Brent crude traded briefly at $138.00 but prices are currently lying around $128.00 a barrel. India, which imports nearly 80 per cent of its requirements, will find the situation very tough, analysts said.

Why is the rupee falling?

The rupee hit a record low in early trade on Monday as a sharp surge in global crude oil prices threatened to push up imported inflation and widen the country’s trade and current account deficits.

The rupee was trading at 76.92, after touching 76.96, its weakest level ever. It closed at 76.16 on Friday. The rising oil prices will add to India’s import bill and push up inflation. The rupee is expected to weaken more and cross the 77 level against the US dollar, while rising commodity prices would raise inflation.

What should investors do?

Analysts said investors should stay invested if they have a long-term investment plan, and mutual fund investors should continue their SIP plans without breaking the investment.

On the other hand, a big correction will give an opportunity to investors to pick up good quality stocks at attractive levels. “Investors should wait and watch the unfolding situation before making any major commitments. Buying should be confined to stocks/ segments which are fairly valued or have good earnings visibility,” V K Vijayakumar, Chief Investment Strategist, Geojit Financial, said.

It is advisable that all investors should follow a wait-and-watch strategy and avoid any fresh entry at the current juncture. If the Ukraine crisis escalates further, the market is likely to take a further beating as oil prices are expected to remain at an elevated level.

While the US Federal Reserve is also meeting next month to take a decision on raising interest rates and tightening liquidity, there are expectations that the Fed may not go in for a steep hike or tightening.

Another worry is the impact of rising crude oil prices on the Indian economy at a time when inflation is at the 6 per cent level, above the RBI’s upper band.

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