The recent geopolitical upheaval has caused strong turbulence in the stock markets across the globe, leaving investors confused about how to tread in such a market.
The Russia-Ukraine episode is taking ominous turns- the West has announced stringent measures against Russia while Russian President Vladimir Putin has ordered to place put Russia’s nuclear forces on high alert. As per fresh media reports, both Russia and Ukraine may indulge in talks soon. Since February 14, key equity indices the Sensex and the Nifty have ended in the green for only two days.
The unfolding geopolitical events are keeping investors on tenterhooks. The domestic market has been witnessing high bouts of volatility, in sync with most of its global peers. At this juncture, it is crucial to make well-calculated bets in the market lest you should suffer severe damage.
"The market looks structurally weak now. The prevailing volatility is hard to trade, we thus suggest traders limit positions and wait for some stability. Investors, on the other hand, should use this phase to accumulate quality stocks on dips," said Ajit Mishra, VP Research, Religare Broking.
Market analysts advise investors with a low-risk appetite should stay away from high beta sectors and bet more on defensive ones such as pharma.
“We expect volatility to prevail in the near term and advise investors to avoid fresh longs. It is advisable not to add high beta sectors like metals and infra to your portfolio at this juncture and maintain an adequate proportion of defensive stocks like pharma since the volatility is expected to prevail in the near term,” said Likhita Chepa, Senior Research Analyst at CapitalVia Global Research. While betting on sectors, it is important to maintain a stock-specific approach and select stocks with healthy financial records for the long term.
It has been observed historically that the market jumps to log strong gains after a war-like situation.
"After a precipitous fall, especially due to war-like scenarios, headline indices together with top tier market-leading companies with strong fundamentals are quick to recover and generate outsized returns for investors. Post the fall subsequently a rally of nearly 145 percent can be expected," brokerage firm KRChoksey said in a report.
So, looking at similar historical scenarios, one may infer the situation as an opportunity for investment in selective counters. Especially the low beta blue-chip counters that are treated to be defensive in such a market scenario, said Osho Krishan, Senior Analyst - Technical & Derivative Research, Angel One.
Krishan recommends IT and FMCG space to be considered to accumulate in a staggered manner and one should not hurry for the ultimate bottom hunting.
“Also, looking at the uncertainties and volatility in the market, one can avoid globally linked auto space to some extent. Even considering the versatility of the banking sector, it too should be avoided until the market does not stabilize,” said Krishan.
Hemali Dhame, AVP, Fundamental Research, Kotak Securities, believes one should prefer large private banks from the financial space as the confidence in asset quality remains high and the focus is on growth.
“As the economy has been recovering, asset quality trends are positive, we may move down a few high-quality names at an attractive valuation,” said Dhame.
Dhame recommends ICICI Bank, SBI, Axis Bank, Bank of Baroda and Canara Bank. Among regional banks, one can consider DCB Bank and KVB Bank with a longer term horizon, Dhame said.