What does the Russia-Ukrain crisis means for Indian Trade?

Pharmaceuticals account for the majority of India exports to Ukraine. India is 3rd largest exporter of pharma products to the country in value terms. On the other hand, Ukraine is one of the biggest exporters of sunflower oil to India. 

The worsening Ukraine-Russia situation has the world worried, as it has wider security and economic implications for several countries, including India, with growth yet to come back on track following the COVID-19 outbreak. 

Indian equities crashed more than 2% at the opening bell on Feb. 22 after Russia recognised two rebel-dominated regions of Ukraine, escalating the simmering crisis that has scorched markets across the world for the past several days. 

India's bilateral trade turnover stood at $2.52 billion in 2019-20, up over 25% from 2.01 billion in 2015-16. However, the turnover in 2019-20 declined by 7.59% from 2.73 billion in 2018-19. 

India exports have surged a whopping 79% from $259.11 million in 2015-16 to $463.81 million in 2019-20. On the other hand, imports have increased by over 17% from $1751.1 million to $2060.79 million during the given period. Pharma account for the majority of Indian exports to Ukraine. India is the 3rd largest exporter of pharmaceutical products to Ukraine, after Germany and France, in value terms. 

A number of Indian companies like Rambaxy, Dr. Reddy Lab. & Sun Group has their representative offices in Ukraine. Representatives of major pharmaceutical companies have set up an India Pharmaceutical Manufacturer Association (IPMA) in Ukraine. The biggest macro headwind for India is a rally in crude prices. The inflationary consequence of this will force the RBI to abandon its dovish monetary stance. Crude oil has surged about 3.5% to $97 per barrel, while gold has crossed the $1900 mark amid risk aversion. 

The India-Ukraine bilateral trade assumes significance amid the escalating border tensions between the Eastern European nation and Russia. With the regions peace hanging in balance, Indian companies with exposure to the European union have come under pressure as investors fear the impact on business from the escalating tension.

Mutual Funds Vs. Stocks

Most investors face the dilemma of whether to go for stocks or mutual funds. Let's be quite clear that there's no wrong or right answer to this. The matter is entirely subjective, and pitching one against another is like comparing apples and oranges. To simply put, if you are investing in stocks, you are responsible for your picks.

On the other hand, if you invest in mutual funds, the fund manager takes this call on your behalf. You need to be mindful of certain crucial factors before choosing either asset class to achieve your goals. What are they? Let's find out.

If you possess the required knowledge and experience, direct stock investment can work wonders for you. However, if you dabble in stocks only once in a while or depend on a third party for advice, you should think twice before committing. Stock investment warrants you to be an active market participant.

The fund manager looks after your portfolio, and even if you forget about your investments, you can still make good money. In a nutshell, mutual funds work well for passive investors who have the paucity of time and the required experience to navigate market movements and read between numbers.

Portfolio Diversification:

One of the core tenets of investing, diversification helps reduce risk and balances your portfolio. A well-diversified portfolio helps ride choppy waters easily and ride turbulence with gusto. A basket of 10-15 stocks in different sectors gives you the required diversification. When you invest in a single stock, you get exposure to the domain that the company operates. For example, if you buy stocks of a technology firm, your exposure is limited to that sector itself.

On the other hand, when you invest in a mutual fund, your money is spent in diverse sectors. This is because the underlying portfolio of the fund invests in different sectors. It helps in automatically diversifying your portfolio and gives you a chance to augment returns in the long run.

Superlative Against Moderate: 

With stocks, you can get extreme happiness or despair. If you have a multibagger, your returns can swell in no time. On the other hand, there are equal chances of sitting on an agonizing dud dragging down returns. Having said that, you can't compare returns of a single stock against a mutual fund.

Equally essential is to note that while a mutual fund can't double your returns overnight, a stock has the potential to do so. Returns from mutual funds are in line with broader market trends. Also, with mutual funds there are checks in place. The fund manager must follow certain mandates in line with SEBI's regulations.

On the other hand, direct stock investment can lead you to invest in only high-yielding ones, increasing your portfolio's concentration risk.

What Should You Opt For?

You must keep an open mind and invest in both financial instruments. While mutual funds are a prudent choice for building a goal-oriented portfolio, the right stock investment can help you leave behind an inheritance to cheer.