NEW DELHI: Equity markets across the world witnessed a bloodbath on Tuesday after the deepening Ukraine-Russia crisis sent stocks tumbling and crude oil surging.
On Monday night, Russia’s president Vladimir Putin ordered troops into two breakaway regions of eastern Ukraine run by Moscow-backed separatists. He recognised the territories of Donetsk and Luhansk as independent states in a televised address. The US, UK, Europe and other countries have condemned the move and threatened to impose tough sanctions. Ukraine’s President Zelensky, in his own late-night speech, said Ukraine is not afraid and will not yield anything to anyone.
Since countries are interdependent economically, politically, and socially, stock markets are sensitive to such developments and react sharply to them, which is why a geopolitical risk playing out thousands of kilometres away from New Delhi has impacted India’s stock markets. The Sensex that was near its all-time high in January at around 61,000 level, is now scraping 57,000.
On Tuesday morning Indian benchmark index Sensex crashed 1,000 points in just half an hour amid rising war-like tensions between Russia and Ukraine. Brent crude futures rose 2.1% to $97.44, a new seven-year high, on worries Russia’s energy exports could be disrupted. Given that Russia is one of the world’s top oil producers, any western sanctions would disrupt the global oil supply. The rupee also fell 33 paisa or 0.44 per cent to hit 74.84 to USD.
The consequences of a war-like scenario would be higher oil prices, an equity sell off, and people flocking to safe haven assets like bonds, gold and the Japanese yen. In India, investor sentiment has taken a hit. In the last few days, foreign portfolio investors have turned net sellers and have pulled out a net of Rs 51,703 crore from Indian equities between January and February.
Domestic inflows now have more clout than foreign investors, so sit tight
” The reason for today’s Sensex fall is due to the crisis in Russia and Ukraine, possibility of a trade war, high US Inflation, and GDP imbalance in the United States. This has caused US bond yields to increase, which also resulted in selling in emerging markets like India. In the Indian market, foreign institutional investors have sold nearly Rs 130000 crore in the last five months, but the market is only down 10% because of domestic inflows. The Market will be volatile due to the macro situation, but we will fare much better internally than the rest of the world economy as India’s GDP and inflation are on track. Domestic institutional investors and mutual fund inflows now have more clout than FII outflows,” said Gaurav Garg, Head of Research at CapitalVia Global Research.
Garg’s advice to investors is to sit tight, book profits on higher levels and invest on lower levels. “Today all the broad indices are down along with the large cap shares. Investors must add blue-chip stocks in selected IT, Metal and Banking shares,” he says.
Buy some gold, please
Bullion is considered a hedge against inflation and geopolitical risks. Gold prices hit a near nine-month high on Tuesday, as the situation in Eastern Europe intensified, supporting demand for safe-haven bullion. “The most direct impact will be on oil prices and its knock-on effects on inflation and interest rates. So having some allocation to gold is always prudent. During extreme geo-political events or inflationary environments, gold generally outperforms. It was up during 9/11, global financial crisis and in March 2020 at that start of the pandemic,” said Atanuu Agarrwal. He manages smallcases using machine learning, and is Founder, Upside AI.
Opt for SIPs, instead of lumpsum investments
An escalation of the crisis would mean sanctions on Russia, the world’s 2nd largest crude oil exporter, and oil prices, which are already up 40% since December, could inch up to the scary $100+ /barrel territory. The Indian government would have to float fuel subsidies in such an event, and persistently high crude oil prices will throw off the country’s fiscal math. “Sectors gaining from here will be downstream energy stocks, and the banking and NBFC sectors would also gain from rising interest rates. We expect volatility to continue until clarity on the sanctions and US rate hikes. Investors should focus on dollar-cost averaging or SIPs instead of lumpsum investments in such market conditions,” says Sonam Srivastava, Founder, Wright Research.
View the dip as a buying opportunity since political fallouts are short lived
Ideally, if you are a long-term investor, it’s time to ignore these macro developments and plan a gradual entry into long term portfolios as history has shown that fallouts related to geopolitical events is rather short lived.
“Over the last 3 decades we have seen at least a dozen such events and each of them have proved to be a buying opportunity for those looking for long term gains. In 24 out of 29 big geopolitical events, going back to WWII, markets have seen positive returns a year later. Even a massively negative event like 9/11 saw Indian markets down only 2% after a year,” says Deepak Shenoy who manages Momentum based smallcases, and is Founder, Capital Mind.
Truist Advisory Services reviewed 12 historical events, including the 2003 Iraq War, 1979 Iranian hostage crisis and the 1962 Cuban missile crisis. The S&P 500 was higher a year after those events in nine of the 12 times, with an average gain of 8.6%, reported Reuters
Another research by CFRA that analyzed 24 events since World War II found the S&P 500 fell on average of 5.5% from peak to trough in the aftermath of those events. The market took an average of 24 days from the start of the event to reach a bottom, but it recouped those losses in an average of 28 days later.
“For an investor, it’s best to assume that markets should normally fall as much as 30% even without such events, and we are only -10% from the top. The simplest strategy would be to invest in parts over the course of the next year, rather than attempt to time them today. Diversify across markets, add to your portfolio over time, and be aware that markets can do far worse than they have,” added Shenoy.
We are in a structured bull run so stay invested in quality stocks
“The overall trend is bullish but we may have high volatility over the next month therefore short-term traders should remain light while long-term investors should look at this correction as a buying opportunity. We are very bullish on capital goods, infrastructure, real estate, banking, consumer goods, and auto ancillaries space therefore we advise investors to look for buying opportunities in these areas,” says Parth Nyati, Founder, Tradingo.
Meanwhile Santosh Meena, Head of Research, Swastika Investmart Ltd is bullish on IT and auto.
• The long term should stay invested and look for buying opportunities in this correction because we are in a structural bull run where the bull market will remain intact even Nifty further corrects 10-20% from here.
• Investors should focus on the domestic economy facing sectors like capital goods, infrastructure, real estate, banking, etc.
• IT sector may continue to do well where ongoing correction is an opportunity to add some quality stocks.
• The auto sector is also providing favorable risk-reward opportunities after a period of underperformance.
Adhil Shetty, CEO Bankbazaar.com has the following advice on how to safeguard your investments from this unavoidable turbulence:
Don’t Panic: While tackling a volatile market, a panic-stricken investment decision is possibly your worst bet. Don’t believe in hearsay and verify any news before acting on it. Hasty decisions can lead to catastrophic losses. Remember that equities serve investors best when they spend time in the market and remain invested for the long term.
Buy The Dip: The intrepid investors love such occasions because the market is trading at a discount. Such volatility presents an opportunity to buy at low prices and pad up margins once uncertainties dissipate and the markets bounce back.
Recheck Your Financial Goals: Your financial goals should guide you through uncertain times. Reassess your financial goals and decide whether to remain invested or pull out.
Diversify Your Investment: This is also a good moment to assess your portfolio diversification. An equities-heavy portfolio will suffer short-term losses due to prevalent geopolitical risks. However, a diversified portfolio with bonds and gold may absorb the losses better. It is always a good idea to diversify your investments. It will soften your losses in risky assets and compensate you through the gains you make in less lucrative but safer ones.
Avoid Hasty Financial Decision: You may want to rush from equity to debt investment now that markets are correcting, but don’t rush the rebalancing. Do it only if your investment plan needs you to. In fact, falling equities may mean that now you need to send more of your debt into equities to restore balance. If you don’t want to decide now, simply wait for the market to improve. Then take a call.


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