How will ABG Shipyard Fraud Case and Russia-Ukraine Conflict affect the Indian Stock Market?3 min read
The Nifty index of the Indian Stock market witnessed a downfall of more than 2% on Monday 14th February and also went below the mark of 17,000. So, let’s discuss what are the reasons behind this fall in the market on Monday in this article.
1) Impact of ABG Shipyard Fraud
- ABG Shipyard is the largest private shipbuilding and ship repairing company based in Mumbai, Maharashtra, India.
- From 2011 onwards, the problems started arising with the company and in 2013 Bank started interfering with the loans provided to the ABG Shipyard worth $3 billion or Rs. 22,842 Cr. Here, the banks have done some restructuring of the loans provided to the company for the survival of the firm and cope-up the problems prevailing in the industry during the concerned period.
- Then in 2016, Banks decided that they will declare the loans provided to the company as Non-Performing Assets starting from dated 2013. These decisions of declaring NPA was postponed till 2019.
- Ultimately in 2019, the banks went to CBI regarding the Loan Fraud. The Fraud which was claimed by the banks was that the Promoters of the business misused or diverted the loan amount to other business or foreign accounts. Finally, CBI has confirmed the charge of the ABG Shipyard and the company for the massive loss of Rs. 22,842 Cr.
- Major Loans provided by some of the banks are:
- ICICI Bank: Rs. 7,089 Cr.
- State Bank of India: Rs. 2,925 Cr.
- IDBI Bank: Rs. 3,639 Cr.
- Bank of Baroda: Rs. 1,614 Cr.
Is this Fraud a concern for the Banks?
Since all the banks have started provision for the loan amount provided to ABG Shipyard from the backdated 2013 itself, hence there will be no effect of this fraud on the profitability or the balance sheet of the bank.
2) Russia-Ukraine Conflict:
- The conflict between Russia and Ukraine is deepening day by day.
- Also, the United States of America is intervening in this matter, and the President of the USA Mr. Joe Biden is being invited by the Ukraine President.
- Currently, there can be some short-term impact in the market due to the geopolitical tensions between Russia and Ukraine. Since the US is getting involved here, there should not be some major war between both countries.
- These short-term conflicts could impact the following things:
i) Rise in Energy Prices:
- 35% of the Natural Gas demand of Europe is fulfilled by Russia.
- Then, if the conflict rises or Russia invades Ukraine, there will be some sanctions on Russia which could hamper the supply of natural gas and oil, since Russia is the net exporter of both.
- The ongoing dispute between the nations which will take the natural gas and oil prices up is surely negative news for India since India is a net importer of Oil. Here, there could be a current deficit for the country as well as a fiscal deficit if the increased prices of crude oil are not transferred to the consumers.
What Should Investors Do?
Investors invested in the bank stocks whose names are the loan provider list of the ABG Shipyard were fully prepared with the massive loss of the loan worth Rs. 22842 Cr. as provisions have been made. There can be a negative impact in the short term on the banks whose names are involved or the whole banking industry as well. Also coming to the next concern i.e., the Russia-Ukraine Conflict, then mostly the geopolitical tensions do not last for a long time but might have some impact on the shorter period. Hence, an investor needs to calm their nerves during this volatility period in the stock market and should stick staggered manner of investing approach and should avoid lumpsum investment.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.