Amid the ongoing geopolitical crisis between Russia and Ukraine which triggered a major sell-off across global markets, analysts remain bullish on the long-term prospects of the Indian market.
Russian President Vladimir Putin announced a “special military operation” in Ukraine on Thursday, sending shockwaves across global markets. The development led to crude prices soaring and rupee weakening against the dollar.
Entry point for investors
The rising crude prices may add to the current headwinds including growing inflationary pressure and slow down economic growth, leading to further near-term volatility. However, analysts remain bullish, advising investors not to panic. According to experts, the current correction in the market may prove to be an entry point for investors.
Nilesh Shah, Group President & MD, Kotak Mahindra Asset Management Company said, “It is difficult to predict the bottom of the market in a scenario like war. Events will shape the movement. The best thing for an investor is to follow asset allocation principles. This is likely to be a Buy on Dip Market albeit with lot of volatility in the near term.” However, investors will be keenly watching the impact of the events on crude prices and commodity prices.
Naveen Kulkarni, Chief Investment Officer, Axis Securities, said, “Geopolitical events often come up with short-term reactions in the market as the dominant news flow leads to market volatility. The current Russia-Ukraine crisis would lead to a rise in oil prices, higher than the current levels. High crude prices could delay the cool-off in inflation, which was expected to go moderate by the second half of 2022.”
“We believe the present macroeconomic developments are leading to volatility in all major asset classes, including equity and debt. The volatility is here to stay for some time before we conclude a market direction. Investors should focus on asset allocation and use this volatility to build long-term positions in quality large and mid-cap stocks as they become attractive after the recent correction and provide a good entry point,” said Kulkarni.
Focus on crude
Vijay Chandok - MD & CEO, ICICI Securities, said, “While the escalated war situation between Russia/Ukraine has led to sharp cut in key equities across the globe, we believe crude trajectory will the key element to watch out for going ahead.”
“We don’t expect major sanctions which may drive big spike in crude, equally harming Europe and US, or even in terms of aggressive rate hike leading to slower economic growth. We, thus, believe that market stabilisation is likely in the short term. Nonetheless, medium to long term thesis on Indian equities remain intact amid economic recovery as reflected by key macroeconomic indicators, strong capex spends and robust corporate earnings (Nifty earnings growth likely at 21.5 per cent CAGR over FY21-24),” said Chandok.
According to Nitasha Shankar, Head PRS Equity Research, Yes Securities, “This is a time when investors will be tested for their patience and discipline. Markets are choppy and will probably remain this way for some time, but that should not deter a serious investor. The underlying reason for remaining long on India (as an investment) remains strong.”
According to Shankar, the reason for the optimism regarding long-term includes India’s strong corporate health, private capex cycle making a come back and strong public capex. Further, China plus one strategy helping drive demand in specific sectors, PLI scheme and its impact on domestic production and green energy transition are other reasons.
“Moving in and out of investments based on undue reliance on recent performance is likely to result in excessive trading and inferior performance results. This is the time to revisit the basics, have confidence in the long term potential of India and remain invested in the same,” Shankar said.
According to Santosh Meena, Head of Research, Swastika Investmart Ltd, “We are in a structural bull market like 2003-2007. There were three corrections of more than 30 per cent in the last bull run.
‘Meaningful correction’
“We are seeing the first meaningful correction in the market and long-term investors should not panic on this correction because it is just taking out weak hands before resuming its upmove. This correction will provide a good buying opportunity where major wealth can be created in the next 3-5 years,” said Meena.
Vineet Bagri, Managing Partner- TrustPlutus Wealth said, “We must remind ourselves that this decline is not due to any India-centric issue. Thus, we would not be too concerned regarding this ongoing correction and would view it as a healthy break from the rally we have witnessed over the past two years.”
From a technical perspective, according to Prashanth Tapse, Vice President (Research), Mehta Equities Ltd, “Markets will behave like a wild animal but we suspect any weak rebound attempt will again be swept aside by bears at around Nifty’s 16700-16900 zone. So, selling on strength will continue to be the preferred trading strategy. “