India is likely to promote UPI, Rupay, and domestic e-commerce firms further, to de-risk itself from a strategic standpoint, Motilal Oswal Institutional Equities said in a report.
“We may see the Government of India move further ahead with PLI schemes and provide more sops/opportunities for companies to invest in new age areas such as EV, clean energy (renewables and green hydrogen), robotics, AI, electronics, battery storage, semiconductors, etc”, it added.
While the current crisis has directly/indirectly impacted most of the sectors from a demand/supply chain perspective, the brokerage said Autos, Consumer, Consumer Durables, and Cement have been the most adversely impacted sectors due to the spike in commodity and energy prices.
The impact on gross margins for these sectors would be substantial. On the flipside, Metals and O&G have been the direct beneficiaries due to rising prices, while indirect beneficiaries include export-oriented sectors (specifically IT– benefitting from INR depreciation) and non-crude-linked sectors.
The current sanctions on Russia may lead to a sharp strategic rethinking by countries on their trade and dependence on other countries. From a strategic point of view, more countries are likely to raise their defense spending since this emerges as the single biggest factor in the heightened geopolitical situation. Besides, more and more countries may look at promoting their domestic manufacturing capabilities to de-risk themselves from the supply chain disruptions, the report said.
Emerging markets have been adversely impacted by the risk-off stance and strengthening USD and these resulted in net FII outflows from most of the markets due to flight of safety. FIIs have sold USD14.2b (net) inequities in CY22 YTD, which is the highest in absolute terms. More importantly, the pace of outflows has accelerated beginning CY22.
After selling USD5beach in Jan 2022 and Feb 2022, FII outflows in the first nine days of March 2022 have already crossed USD4.5b. With India running a twin deficit, high energy and commodity prices would weigh on its currency, it said.
Russia remains an important global commodity supplier and accounts for nearly 17 percent of global natural gas production and 10 percent of global crude oil production. In terms of its share in global minerals trade, Russia currently accounts for 9-10 percent of the global aluminum trade, 20 percent of thermal coal exports, 12 percent of global steel exports (ex-intra-regional trade), and 11-12 percent of global nickel exports.
While the current sanctions have disrupted the supply chain, it would be difficult from a global perspective to immediately find an alternative supplier. This will keep the prices elevated in the short term. Brent has increased 59 percent in CY22YTD and briefly crossed USD130/bbl while Aluminum and Nickel are trading at their record highs.