After suffering a massive loss of 2,700 points on February 24, equity barometer the Sensex vaulted almost 1,500 points in the early trade on February 25, with most sectoral indices up with healthy gains.
Mid and small caps jumped even higher, more than 4 percent each, buoyed by across-the-board buying as domestic market sentiment improved, mirroring trends in the US and Asian markets. Investors’ risk appetite improved after US president Joe Biden announced strong new sanctions against Russia. Investors assessed the situation unfolding in the Russia-Ukraine saga, anticipating harsh economic sanctions may force Masco to take its steps back in Ukraine.
The market opened in the green and traded with strong gains so far. But the trend of the market is likely to remain volatile in the near term due to geopolitical issues and lofty crude oil prices. Market analysts advise investors to keep the strong volatility factor in mind and hold horses before going all out on heavy buying amid the market crash.
“While the medium and long term outlook of the Indian market is positive, equity investors should maintain restraint in the near term and see how the crude price behaves,” said Pankaj Pandey, Head Research at ICICI Securities.
Crude oil prices have been on an upward march in the last few days as Russia’s invasion of Ukraine has fanned worries over the global supply of oil. Strong economic sanctions against major crude exporter Russia, too, has aggravated concerns over global supply disruption. Benchmark Brent crude traded above $100 a barrel on February 25.
Elevated crude price is a big worry for the Indian market as it impacts the fiscal maths of the country and hits the economic prospects. Prolonged higher crude oil prices may further weaken the Indian currency and trigger FII outflow.
All these factors will keep the market in uncertain territory.
“But we are in the context of a war with a high level of uncertainty. A lot will depend on whether this will be a short war or will it get prolonged. If it turns out to be a short war with Russia succeeding in putting a pro-Russian government in Ukraine soon, markets are likely to bounce back. On the other hand, if it gets prolonged, the uncertainty will impact markets,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
In the short term, investors may stay invested in large cap, bluechip stocks and wait for stability on the Russia-Ukraine episode and crude oil prices. IT, banks and real estate stocks can be bought if one wants to get into equities at this juncture.
“Since the situation remains fluid, investors may remain cautious and vigilant. For long-term investors who can ignore the short-term gyrations in the market, there are buying opportunities in high-quality stocks that have corrected significantly. Financials, IT and real estate stocks have the potential to bounce back smartly in a favorable environment," said Vijayakumar.