Russia-Ukraine war benefitting agriculture sector but these industries may not fare well

By Raghvendra Nath

Equity Markets provide an instant reflection of everything happening in the Economies, directly or indirectly. Markets have been known to price risk better than anyone else. One may even say that markets are a true reflection of the collective wisdom of all participants, big and small. The nature of Equity markets is such that it does not wait for the events to unfold completely, the markets take cognizance of the risks and the opportunities as they happen and keep adjusting themselves with every passing moment.

We, of course, also know the pendulum-like behaviour of the markets where the investor community keeps swaying between extreme fear and extreme greed. Most of these extremes happen because the nature of the majority of investors in Equities is such that for them, today is far more important than tomorrow, and therefore many of them give in to the volatility in the short term both on the upside as well as downturns. I mean, the fear of missing out forces most investors to pump money when the markets are surging ahead. Similarly, the fear of getting crushed prompts investors to exit before it is too late when the markets are plunging. Generally, such extremes represent irrational valuations and smart investors can take advantage of such situations to time their investments into or out of the market. For instance, March of 2020 provided one such opportunity where the whole world was thrown into a pool of uncertainty causing Equity markets to react sharply. Whoever had the courage to invest in those panicky times has benefited by buying stocks at cheap valuations. 

Wars present a classic situation where the fears are immense as the uncertainties are high. For instance, when a simple street brawl turns into a riot, no one knows. Wars are similar. Wars have tremendous consequences for everyone. The country under invasion suffers the most. The country invading is not spared either. And the rest of the connected world also suffers from Economic consequences. Even a country far away from the conflict feels the heat of the war on its Economy.

In the present instance, the sanctions on Russia have resulted in spiralling oil prices which may result in higher inflation, higher deficits, impact on consumption as well as corporate profitability. Whether the oil prices pull back or go up further, completely depends on the intensity and the longevity of the war.

But as investors, we should understand that while the fears affect the broader markets, they also give opportunities to buy specific stocks at attractive prices. And since every war has to give way to peace ultimately, one should show courage in these times and invest in their chosen stocks when such opportunities present themselves and do not worry about the short-term volatility. History shows that the periods after the war are generally very bullish for the markets and the recovery can be really swift.

Bearing these factors in mind, one should note that there will always be industries that will get drastically affected due to the upheaval, but there will also be companies/sectors that would equally benefit from such exceptional situations. As an investor it is on to us, to keep our eyes open to any such hidden opportunities. 

If we look at the current war, there are sectors like the agriculture sector which benefitted as prices of agro commodities shot up due to supply chain constraints. Additionally, companies in agrochemicals could also be seen benefiting from the current scenario. On the other hand, sectors like automobiles would have to bear the larger pain from the continued shortage of semiconductors, supply-side pressure and the rising prices of liquid gold. Even other industries which use metals, oil, agro commodities, etc as raw materials might face margin pressures. And aiming for companies with strong fundamentals would always benefit from a long-term perspective.

Remember, nothing is more expensive than a missed opportunity!

(Raghvendra Nath is the Managing Director of Ladderup Wealth Management. The views expressed are the author’s own. Please consult your financial advisor before investing.))