The current Russia-Ukraine conflict can benefit Indian investors if they understand how to capitalise on the stock market's influence.
The last time there was a major breakdown like this was in March 2020, when the Indian government declared a total economic shutdown with the exception of a few critical services.
“The market may remain volatile due to the Russia-Ukraine crisis. The trend in global equities, the movement of rupee against the dollar and crude oil prices will dictate the trend in the near term,” says Mitul Shah, head of research, institutional desk, Reliance Securities.
He adds that there is hope for revival. “The Indian economy is in good shape given the underlying stellar corporate earnings momentum, the cleansed balance sheets, improving asset quality of the banks, levers in place for CAPEX cycle revival and credit off-take, probable manufacturing resurgence given PLI and other government reforms.
This coupled with increasing DII (domestic institutional investors) participation can revive the markets to earlier high levels once prevailing clouds of uncertainty disappear,” says Shah. In the last six months, foreign portfolio investors (FPIs) have sold close to about ₹1.22 lakh crore worth of equities but DIIs have been buying.
Opportunity For Equity Investing
Situations like wars are unfortunate incidents but they still provide an opportunity for long-term investors. “Every time we wait for a correction and when it comes, there is a fear factor which grips investors.
This is the time to slowly start getting into investment mode. If anyone is sitting with funds with at least three-five years horizon can start putting at least one-third of the corpus and the balance over the next three to six months,” says Juzer Gabajiwala, director, Ventura Securities Ltd.
Due to the intense selling pressure by FPIs, several good-quality large-cap and blue-chip stocks are available at a cheaper rate than earlier. The ongoing market-wide sell-off triggered by the Russia-Ukraine war only accelerated this phenomenon, since FPIs were selling long before the news of war broke out.
“FIIs have been pulling out money from Indian markets as concerns regarding valuation, higher inflation, and slow pace of economic growth impacted sentiments.
In addition, geopolitical tension between Russia-Ukraine as well as rising crude oil added to the worries.
On the contrary, DIIs have been providing support and continuously pumping in money in the markets. Going ahead, we believe the inflow from FII would depend upon softening crude oil prices, interest rates, improving economic growth and better earnings,” says Ajit Mishra, vice-president, research, Religare Broking Ltd.
What Should You Do?
Prices of equities and other asset classes have softened a lot since the news of war broke out. Bond yields have spiked, gold and other precious metals are trading at a premium, and equities are getting deeply discounted.
Given the changes, it may be time to readjust your asset allocation. If you think you can’t do it on your own, consult an advisor.
Asset allocation is like a football team in which you need strikers, midfielders, defenders, and a goalkeeper. You cannot win a football match with only strikers or only defenders.
In investing, you need to have assets that provide you with capital appreciation, inflation protection, regular income, and protection against geopolitical events such as war.
Based on this basic understanding one should customise asset allocation based on your risk profile, investment horizon, and financial goals,” says Mayank Joshipura, Associate Dean at School of Business Management, NMIMS, Mumbai.
Since the markets have fallen due to uncertainties brought by the Russia-Ukraine war, nobody knows when the market will rebound.
So, the best approach would be to invest in a low-risk debt fund or ETF and then use a systematic withdrawal plan (SWP) to transfer funds into your equity funds at a specified date rather than going all-in.
For investors with a lower risk appetite, amongst equity funds, we would recommend a Flexi-cap fund or a large and mid-cap fund in current circumstances.
However, the medium-term asset allocation of the investor should also be kept in mind in this process. As equity markets correct, we would advise increasing the equity allocation levels, depending on the risk appetite of the investor and his existing asset allocation,” said Trideep Bhattacharya, chief investment officer, equities, Edelweiss Asset Management.
Stick to the Long term
While it is true that deep market corrections provide an investment opportunity, it only works if one invests for the long term.
Geopolitical tension and market movements should not be the only reason to invest, say experts. “Keep it simple and remember there are three pillars of successful equity investing: discipline, patience, and luck.
If you have the first two, luck has no choice but to oblige. So don’t make your investment decisions based on market moves or economic or geopolitical events,” says Joshipura.