As Sensex, Nifty crash, here’s how Russia-Ukraine war may impact Indian companies
On Thursday, after midnight local time, Russia effectively invaded Ukraine, with President Vladimir Putin asking the military forces of his smaller neighbour to “lay down” their arms or risk destruction.
While the world at large stares at one of the most serious conflicts to have hit Europe since the Second World War, Indian businesses could also be severely impacted by the crisis.
What kind of companies in India could be impacted?
Several major Indian companies including those in sectors such as oil and gas, pharmaceuticals and even tea have a significant exposure to Russia.
On top of that, Russia and Ukraine account for 90% of India’s sunflower oil imports. Sunflower oil is one of the most popular edible oils consumed in India, alongside palm oil, soy oil and other alternatives. In fact, sunflower oil is the second most imported edible oil, next to only palm oil.
In 2021, India imported 1.89 million tonnes of sunflower oil. As much as 70% of this was from Ukraine alone. Russia accounted for 20% and the balance 10% was from Argentina.
“India imports about two lakh tonne per month of sunflower seed oil and at times it goes up to three lakh tonnes per month. India is dependent on edible oil imports to the tune of about 60%. Any global development will have an impact,” Sudhakar Desai, President of the Indian Vegetable Oil Producers' Association, told IANS.
While Ukraine produces about 17 million tonnes of sunflower seeds a year, Russia produces around 15.5 million tonnes. Argentina is far behind the two countries and produces around 3.5 million tonnes of sunflower seeds.
Amid the tensions with Russia, Ukraine has reportedly not sent a single shipment of sunflower oil in February. The usual shipment from Ukraine in the February-March period is between 1.5 million and 2 million tonnes of sunflower seeds. If the conflict continues for two or three weeks, it will put pressure on the Indian market.
Which listed companies have so far been impacted?
On Tuesday, as the Russian military operations began in some of the breakaway regions of Ukraine, Tata Motors, which owns Jaguar Land Rover (JLR), slipped 3.28% on fears that its Europe sales could be impacted.
On Thursday, Tata Motors plunged 7.25% in morning trade while the BSE Sensex was down more than 3%. Similarly, Motherson Sumi, a key automobile parts supplier to European companies, was 6.5% lower.
Drugmaker Dr Reddy’s Laboratories was down 3% while Sun Pharma fell 2.4%. Companies like Dr Reddy’s Laboratories have representative offices in Ukraine and Indian drugmakers have also set up an Indian Pharmaceutical Manufacturers’ Association (IPMA) in Ukraine.
Moreover, Russia is one of the key markets for India’s pharma exports -- ranking fourth after the US, South Africa, and the United Kingdom -- and any disruption would be a concern. Russia accounted for 2.4% of India's pharmaceutical exports in the fiscal year ended March 2021, according to the data from the Pharmaceuticals Export Promotion Council.
How about crude oil?
India imports more than half its liquified natural gas and up to 70% of all its fossil fuel energy needs. While actual volume of imports may not be impacted much, the prices of crude oil in the international market have topped the $100 per barrel mark, and will remain high as long as this conflict brews.
This will mean that companies back home will have to raise fuel prices for the end customer, and will, in turn, have an inflationary impact. It will also skew India’s balance of payments.
HPCL Chairman and Managing Director MK Surana warned of supply chain disruptions if the situation in Ukraine worsened. “There are three factors affecting crude oil prices. One is the Russia-Ukraine crisis. The second is a contrarian view coming over Iran-US discussions. The third is the constant inability of OPEC to ramp up production up to the need. So, there is a shortage of 900,000 barrels per day,” Surana told a TV channel.
The worsening geopolitical situation may also impact a few acquisitions by Indian oil companies in the region. Currently, talks are on between Novatek, Russia’s largest producer of liquefied natural gas (LNG), and an Indian private player for a long-term supply deal. Besides, a consortium of Indian companies, including Petronet LNG and ONGC Videsh (OVL), were in talks to acquire a 9.9% stake from Novatek in Arctic LNG 2, a gas field.
A Business Standard report says that if any sanctions were imposed, then these discussions could slow down. At present, GAIL has a long-term LNG deal with Gazprom for importing around 2.5 million tonnes of LNG per year.
The report also said that officials of the government-owned companies, including OVL, Indian Oil Corporation, Oil India, and Bharat PetroResources, are worried about their investments to the tune of $13.63 billion in Russia’s oil and gas projects. Of this, $4.84 billion was spent on two assets — Vankor and Taas Yuryakh.
However, Russian major Rosneft-backed Nayara Energy's Vadinar refinery in Gujarat is unlikely to have any impact on its crude procurement as the company is dependent on West Asian crude oil.
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