Key equity indices the Sensex and the Nifty suffered deep cuts in early trade on February 24 as the market sentiment received a blow after Russia announced a military operation in eastern Ukraine.
The Sensex and the Nifty both cracked more than 3 percent each, eroding nearly 8 lakh crore of investors’ wealth. Second-rung indices such as the mid and small-cap indices cracked up to 4 percent.
The Ukraine-Russia conflict has already been keeping the market low in the last few sessions. If the market closes in the red today, it will be its seventh consecutive session of losses.
Market analysts point out that the Russia-Ukraine saga has been keeping the market in a corrective phase.
“The growing concern surrounding the deteriorating Ukraine crisis has pushed global stock markets into correction mode. The near 20 percent decline from the peak in NASDAQ is a clear indication of the correction that has set in,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
More pain in the offing?
At this juncture, investors are grappling with the key question as to how long they have to suffer. What are the key risks that the market may face if NATO involves in the tussle against Russia? Will it escalate into a bigger global war?
The chances are unlikely that war will be a prolonged one and diplomacy may play a key role to puncture the heat between Russia and NATO forces.
“This war is most unlikely to convert into a word war as all major nations have bombs. It may be a localized proxy war inside Ukraine and it may continue for some time,” said G Chokkalingam, Founder & Head of Research, Equinomics Research & Advisory Private Limited.
Chokkalingam added that equity markets always react in a magnified manner to the initial events and finally adjust to the fundamental consequences of the events.
There may fall another 2 percent to 3 percent from the current levels and after that, it would start adjusting for the perceived eventual consequences.
“We believe that after a few weeks, the war either would stop or continue as a proxy war for a longer duration. The global equities would adjust with eventual consequences within 2 or 3 weeks,” said Chokkalingam. He believes Sensex to fall another 3 percent maximum and then stabilize around 56,000. However, the small and mid-cap (SMC) segment would continue to remain under pressure till theend of March 2022.
What should investors do?
Conservative investors may wait for some time and bet on sectors such as IT which appears to have bright growth prospects.
“IT, though highly valued, is a sector whose prospects are steadily improving. There are instances of promoters buying stocks of IT companies. This is an indication of better-than-expected results from the sector. Investors can use sharp market corrections to slowly accumulate high-quality stocks in IT,” said Vijayakumar.
Analysts see an opportunity in terms of stabilization of the markets by end of March 2022 so one should avoid strong selling in the current market.
“We suggest investors not to resort to heavy selling of quality stocks. We see good opportunities for the small caps from April 2022 onwards. By the time, we expect selling pressures to wane, Ukraine issue to stabilize and FII flows to slowly reverse to positive one,” said Chokkalingam.
Chokkalingam added that on any possible steep declines in quality high conviction small caps, the investors can actually utilize the cash and accumulate those stocks gradually till the third or fourth week of March 2022.
Eventually panic would disappear and March would offer a great opportunity to rebuild aportfolio of small cap stocks to create long-term wealth, said Chokkalingam.